Risk, Monetary Policy And The Exchange Rate

In this paper, the authors provide new empirical evidence on the importance of time-varying uncertainty for the exchange rate and the excess return in currency markets. Following an increase in monetary policy uncertainty, the dollar exchange rate appreciates in the medium run, while an increase in the volatility of productivity leads to dollar depreciation. They propose a general-equilibrium theory of exchange rate determination based on the interaction between monetary policy and time-varying uncertainty aimed at understanding these regularities.

Provided by: National Bureau of Economic Research Topic: Data Management Date Added: Jun 2011 Format: PDF

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