A Theory of Exchange Rates and the Term Structure of Interest Rates

Hyoung Seok Lim, Masao Ogaki

研究成果: Article査読

2 被引用数 (Scopus)

抄録

This paper defines the concepts of indirect and direct risk premium effects and analyzes their properties in an exchange rate model. In the model, these effects are endogenously determined in a rational expectations equilibrium. For the effect of an interest rate shock, they have the opposite signs and the indirect risk premium effect can dominate the direct risk premium effect under reasonable parameters. This means that domestic short-term bonds and foreign bonds are complements in the model even though domestic long-term bonds and foreign bonds are substitutes. This model, focusing on the indirect risk premium effect and on the term structure of interest rates, can be combined with a small sample bias approach to explain stylized facts about the forward premium anomaly, which is found for short-term interest rates, but not for long-term interest rates.

本文言語English
ページ(範囲)74-87
ページ数14
ジャーナルReview of Development Economics
17
1
DOI
出版ステータスPublished - 2013 2

ASJC Scopus subject areas

  • 地理、計画および開発
  • 開発

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