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The Exchange Risk Premium Uncovered Unterest Parity And The Treatment Of Exchange Rates In Multicountry Macroeconomic Models
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Book Synopsis The "Exchange Risk Premium," Uncovered Unterest Parity, and the Treatment of Exchange Rates in Multicountry Macroeconomic Models by : Ralph C. Bryant
Download or read book The "Exchange Risk Premium," Uncovered Unterest Parity, and the Treatment of Exchange Rates in Multicountry Macroeconomic Models written by Ralph C. Bryant and published by . This book was released on 1995 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The "exchange Risk Premium", Uncovered Interest Parity, and the Treatment of Exchange Rates in Multicountry Macroeconomic Models by : Ralph C. Bryant
Download or read book The "exchange Risk Premium", Uncovered Interest Parity, and the Treatment of Exchange Rates in Multicountry Macroeconomic Models written by Ralph C. Bryant and published by . This book was released on 1995 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Foreign Exchange Risk Premium by : Lorenzo Giorgianni
Download or read book Foreign Exchange Risk Premium written by Lorenzo Giorgianni and published by . This book was released on 1997 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Economics of Foreign Exchange and Global Finance by : Peijie Wang
Download or read book The Economics of Foreign Exchange and Global Finance written by Peijie Wang and published by Springer Science & Business Media. This book was released on 2005-11-21 with total page 354 pages. Available in PDF, EPUB and Kindle. Book excerpt: The book presents all major subjects in international monetary theory, foreign exchange markets, international financial management and investment analysis. The book is relevant to real world problems in the sense that it provides guidance on how to solve policy issues as well as practical management tasks. This in turn helps the reader to gain an understanding of the theory and refines the framework. Various topics are interlinked so the book adopts a systematic treatment of integrated materials relating different theories under various circumstances and combining theory with practice. The text examines issues in international monetary policy and financial management in a practical way, focusing on the identification of the factors and players in foreign exchange markets and the international finance arena. The book can be used in graduate and advanced undergraduate programmes in international or global finance, international monetary economics, and international financial management.
Book Synopsis Time-Varying Risk Premia in Foreign Exchange and Equity Markets by : Chu-Sheng Tai
Download or read book Time-Varying Risk Premia in Foreign Exchange and Equity Markets written by Chu-Sheng Tai and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the puzzles in international finance literature is the deviations from Uncovered Interest Parity (UIP). In this paper, I further examine the validity of the risk premia hypothesis in explaining this puzzle by testing a conditional international CAPM (ICAPM) in the absence of Purchasing Power Parity (PPP) using data from both foreign exchange and equity markets in Asia-Pacific countries. When considering foreign exchange markets only, I find that conditional variances are not related to the deviations from UIP in any statistical sense based on an univariate GARCH(1,1)-M model. However, as I consider both foreign exchange and equity markets together and test the conditional ICAPM in the absence of PPP, I can not reject the model based on the J-test by Hansen (Econometrica 50 (1982), 1029-1054), and find significant time-varying market and foreign exchange risk premia presented in the data. This empirical evidence supports the notion of time-varying risk premia in explaining the deviations from UIP. It also supports the idea that the foreign exchange risk is not diversifiable and hence should be priced in both markets.Key Words: International asset pricing, Uncovered interest parity, Time-varying risk premium, GARCH, GMM.
Book Synopsis Currency Risk Premia in Global Stock Markets by : Shaun K. Roache
Download or read book Currency Risk Premia in Global Stock Markets written by Shaun K. Roache and published by International Monetary Fund. This book was released on 2006-08 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Large fundamental imbalances persist in the global economy, with potential exchange rate implications. This paper assesses whether exchange rate risk is priced across G-7 stock markets. Given the multitude of hedging instruments available, theory suggests that stock market investors should not be compensated for currency risk. However, data covering 33 industry portfolios across seven major stock markets suggest that not only is exchange rate risk priced in many markets, but that it is time-varying and sensitive to currency-specific shocks. With stock market investors typically exhibiting "home bias," this suggests that investors are using equity asset proxies to hedge the exchange rate risks to consumption.
Book Synopsis Risk Premia in Foreign Exchange Markets by : Wen-he Lu
Download or read book Risk Premia in Foreign Exchange Markets written by Wen-he Lu and published by . This book was released on 1986 with total page 130 pages. Available in PDF, EPUB and Kindle. Book excerpt: We have attempted to test the existence of time-varying risk premia in foreign exchange markets under two models that we have developed in this dissertation. This first one is an extension to Lucas's general equilibrium model of international finance. By assumption of the Cobb- Douglas utility function of the consumers we are able to derive a closed form for the risk premia in the foreign exchange markets on the setting of a two-country economy model. We used White's test and Engle's test for homoscedasticity and used White's heteroscedasticity-consistent variance-covariance matrix to derive the correct standard errors. The time varying risk premium is tested jointly with the efficiency of the foreign exchange market, i.e., whether the forward exchange rates are unbiased predictors of the future spot exchange rates. The empirical findings indicate that the notion of market efficiency is rejected and there is no risk premium for any of the three cases we studied. In the monetary approach, however, we test the existence of time- varying risk premia alone. By PPP and an extension to the uncovered interest parity we introduced the risk premia into our monetary approach to foreign exchange rate determination. The forward premium is used as a driving force of the risk premium. A rational expectation hypothesis is made and the forward solution derived. Since it is a non-linear single equation model and there is evidence of heteroscedasticity we used GMM estimators and the corresponding variance-covariance matrix and found that there is constant risk premia in the case of Germany and Japan but not in the case of Canada. We also did an empirical study of monetary model with the formation of risk premium derived before. The findings we have is that there is time-varying risk premium in the case of Germany but not in the cases of Japan and Canada. Since our monetary model relaxes the restriction imposed on the semi-elasticity of interest rate the empirical results are based on a more general setting than most of the monetary models of foreign exchange rates. The conflicting empirical results from the two attempts are attributed to the different setting of the models. Extensions to the current data will test whether the conclusion we have drawn is valid.
Book Synopsis Uncovered Interest Parity by : Mr.Peter Isard
Download or read book Uncovered Interest Parity written by Mr.Peter Isard and published by International Monetary Fund. This book was released on 1991-05 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: This note provides an overview of the uncovered interest parity assumption. It traces the history of the interest parity concept, summarizes evidence on the empirical validity of uncovered interest parity, and discusses the implications for macroeconomic analysis. The uncovered interest parity assumption has been an important building block in multiperiod and continuous time models of open economies, and although its validity is strongly challenged by the empirical evidence, its retention in macroeconomic models is supported on pragmatic grounds, at least for the time being, by the lack of much empirical support for existing models of the exchange risk premium.
Book Synopsis A Habit-Based Explanation of the Exchange Rate Risk Premium by : Adrien Verdelhan
Download or read book A Habit-Based Explanation of the Exchange Rate Risk Premium written by Adrien Verdelhan and published by . This book was released on 2009 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a model that reproduces the uncovered interest rate parity puzzle. Investors have preferences with external habits. Counter-cyclical risk premia and pro-cyclical real interest rates arise endogenously. During bad times at home, when domestic consumption is close to the habit level, the pricing kernel is volatile and the representative investor very risk-averse. When the domestic investor is more risk-averse than her foreign counterpart, the exchange rate is closely tied to domestic consumption growth shocks. The domestic investor therefore expects a positive currency excess return. Since interest rates are low in bad times, expected currency excess returns increase with interest rate differentials.
Author :International Monetary Fund. Research Dept. Publisher :International Monetary Fund ISBN 13 :9781589063518 Total Pages :216 pages Book Rating :4.0/5 (635 download)
Book Synopsis IMF Staff Papers, Volume 51, No. 3 by : International Monetary Fund. Research Dept.
Download or read book IMF Staff Papers, Volume 51, No. 3 written by International Monetary Fund. Research Dept. and published by International Monetary Fund. This book was released on 2004-11-23 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests uncovered interest parity (UIP) using interest rates on longer maturity bonds for the Group of Seven countries. These long-horizon regressions yield much more support for UIP—all of the coefficients on interest differentials are of the correct sign, and almost all are closer to the UIP value of unity than to zero. The paper also analyzes the decision by a government facing electoral uncertainty to implement structural reforms in the presence of fiscal restraints similar to the Stability and Growth Pact.
Book Synopsis Exchange Rate Economics by : Peter Isard
Download or read book Exchange Rate Economics written by Peter Isard and published by Cambridge University Press. This book was released on 1995-09-28 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book describes and evaluates the literature on exchange rate economics. It provides a wide-ranging survey, with background on the history of international monetary regimes and the institutional characteristics of foreign exchange markets, an overview of the development of conceptual and empirical models of exchange rate behavior, and perspectives on the key issues that policymakers confront in deciding whether, and how, to try to stabilize exchange rates. The treatment of most topics is reasonably compact, with extensive references to the literature for those desiring to pursue individual topics further. The level of exposition is relatively easy to comprehend; the historical and institutional material (part I) and the discussion of policy issues (part III) contain no equations or technical notation, while the chapters on models of exchange rate behavior (part II) are written at a level intelligible to first-year graduate students or advanced undergraduates. The book will enlighten both students and policymakers, and should also serve as a valuable reference for many research economists.
Book Synopsis Determinants of Currency Risk Premiums by : John A. Carlson
Download or read book Determinants of Currency Risk Premiums written by John A. Carlson and published by . This book was released on 2006 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a theoretical model of exchange-rate determination intended to address the forward premium puzzle. It also explains the empirical observation that risk premiums depend on interest differentials. The model's closed-form solution indicates that currency risk premiums depend on two factors: interest differentials and the current deviation of the exchange rate from its long-run equilibrium. If speculators have an alternative to exchange-rate speculation, then there is no presumption that uncovered interest parity holds even approximately in long-run equilibrium. The model is consistent with existing evidence suggesting that forward premiums are negatively related to rationally expected future exchange rate changes. New empirical evidence is provided in support of the model.
Book Synopsis Macro Variables Do Drive Exchange Rate Movements by : Sen Dong
Download or read book Macro Variables Do Drive Exchange Rate Movements written by Sen Dong and published by . This book was released on 2006 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Expected exchange rate changes are determined by interest rate differentials across countries and risk premia, while unexpected changes are driven by innovations to macroeconomic variables, which are amplified by time-varying market prices of risk. In a model where short rates respond to the output gap and inflation in each country, I identify macro and monetary policy risk premia by specifying no-arbitrage dynamics of each country's term structure of interest rates and the exchange rate. Estimating the model with US/German data, I find that the correlation between the model-implied exchange rate changes and the data is over 60%. The model implies a countercyclical foreign exchange risk premium with macro risk premia playing an important role in matching the deviations from Uncovered Interest Rate Parity. I find that the output gap and inflation drive about 70% of the variance of forecasting the conditional mean of exchange rate changes.
Book Synopsis Properties of foreign exchange risk premiums by : Lucio Sarno
Download or read book Properties of foreign exchange risk premiums written by Lucio Sarno and published by . This book was released on 2011 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis International interest-rate and price-level linkages under flexible exchange rates : a review of recent evidence by : Robert Cumby
Download or read book International interest-rate and price-level linkages under flexible exchange rates : a review of recent evidence written by Robert Cumby and published by . This book was released on 1982 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: "In an open economy, the scope for activist stabilization policy depends on the nature of the linkages between domestic and international markets for goods and assets. Two important relationships--purchasing power parity and uncovered interest-rate parity--have received extensive empirical attention in recent years and are fundamental building blocks of several empirical ex- change rate models. This paper reviews and extends recent econometric findings on these two classical parity relationships and on their corollary, the international equality of expected real interest rates. Econometric tests assuming rationality of expectations are on the whole unfavorable to the classical parity relationships: with few exceptions, they are strongly rejected. A central theme in the review of empirical work is the conditional heteroskedasticity of inflation and exchange rate forecast errors and the bias this statistical problem may impart to tests of inter- national parity relationships. The paper proposes and implements a test for conditional heteroskedasticity which in many cases produces strong evidence that the problem is indeed important"--NBER website.
Book Synopsis Equilibrium Exchange Rates by : Ronald MacDonald
Download or read book Equilibrium Exchange Rates written by Ronald MacDonald and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 353 pages. Available in PDF, EPUB and Kindle. Book excerpt: How successful is PPP, and its extension in the monetary model, as a measure of the equilibrium exchange rate? What are the determinants and dynamics of equilibrium real exchange rates? How can misalignments be measured, and what are their causes? What are the effects of specific policies upon the equilibrium exchange rate? The answers to these questions are important to academic theorists, policymakers, international bankers and investment fund managers. This volume encompasses all of the competing views of equilibrium exchange rate determination, from PPP, through other reduced form models, to the macroeconomic balance approach. This volume is essentially empirical: what do we know about exchange rates? The different econometric and theoretical approaches taken by the various authors in this volume lead to mutually consistent conclusions. This consistency gives us confidence that significant progress has been made in understanding what are the fundamental determinants of exchange rates and what are the forces operating to bring them back in line with the fundamentals.
Book Synopsis Can a Time-varying Risk Premium Explain the Failure of Uncovered Interest Parity in the Market for Foreign Exchange? by : Gregory P. Hopper
Download or read book Can a Time-varying Risk Premium Explain the Failure of Uncovered Interest Parity in the Market for Foreign Exchange? written by Gregory P. Hopper and published by . This book was released on 1992 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt:
