US Fiscal Cycle and the Dollar

34 Pages Posted: 6 Dec 2018 Last revised: 14 Feb 2020

Date Written: March 18, 2019


A stronger US fiscal condition predicts the dollar will have a higher excess return against foreign currencies in the following year, and more so against currencies with higher dollar betas. A stronger fiscal condition in a foreign country, on the other hand, does not have such forecasting power. These results suggest that stochastic discount factors in complete market models should feature a time-varying volatility on the global risk factor to describe exchange rates, and the US fiscal cycle comoves with this volatility.

Keywords: The dollar, fiscal cycle, term structure of risk premium

JEL Classification: F31, G10

Suggested Citation

Jiang, Zhengyang, US Fiscal Cycle and the Dollar (March 18, 2019). Available at SSRN: or

Zhengyang Jiang (Contact Author)

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

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