Mexico's Currency Risk Premia in 1992-94: A Closer Look at the Interest Rate Differentials

1996 ◽  
Author(s):  
Alejandro M. Werner
Keyword(s):  
Interest Rate ◽  
Risk Premia ◽  
Currency Risk ◽  
The Interest Rate ◽  
Interest Rate Differentials

scholarly journals The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk: Reply

2011 ◽  
Vol 101 (7) ◽  
pp. 3477-3500 ◽  
Author(s):  
Hanno Lustig ◽  
Adrien Verdelhan
Keyword(s):  
Interest Rate ◽  
Cross Section ◽  
Foreign Currency ◽  
Investment Strategy ◽  
Risk Premia ◽  
Currency Risk ◽  
Sampling Uncertainty ◽  
Consumption Growth ◽  
High Interest Rate ◽  
High Interest

The consumption growth beta of an investment strategy that goes long in high interest rate currencies and short in low interest rate currencies is large and significant. Consumption risk price differs significantly from zero, even after accounting for the sampling uncertainty introduced by the estimation of the consumption betas. The constant in the regression of average returns on consumption betas is not significant. Additionally, this investment strategy's consumption and market betas increase during recessions and times of crisis, when risk prices are high, implying that the unconditional betas understate its riskiness. JEL: C58, E21, F31, G11, G12

scholarly journals New Evidence on the Forward Premium Puzzle

2016 ◽  
Vol 51 (3) ◽  
pp. 875-897 ◽  
Author(s):  
Jacob Boudoukh ◽  
Matthew Richardson ◽  
Robert F. Whitelaw
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Purchasing Power Parity ◽  
Power Parity ◽  
Forward Premium Anomaly ◽  
Forward Premium ◽  
Premium Puzzle ◽  
The Interest Rate ◽  
Exchange Rate Changes ◽  
Interest Rate Differentials

AbstractThe forward premium anomaly (exchange rate changes are negatively related to interest rate differentials) is one of the most robust puzzles in financial economics. We recast the underlying parity relation in terms of lagged forward interest rate differentials, documenting a reversal of the anomalous sign on the coefficient in the traditional specification. We show that this novel evidence is consistent with recent empirical models of exchange rates that imply exchange rate changes depend on two key variables: the interest rate differential and the magnitude of the deviation of the current exchange rate from that implied by purchasing power parity.

The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bhavesh Garg ◽  
K.P. Prabheesh
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Relevant Information ◽  
Content Type ◽  
Outbreak Period ◽  
Short Run ◽  
The Interest Rate ◽  
Interest Rate Differentials

Purpose This paper aims to investigate whether the interest rate differentials Granger cause expected change in the exchange rate during the COVID-19 period. The study examines if the investors in the international assets and exchange rate markets take advantages of the relevant information obtained during the COVID-19 pandemic. Design/methodology/approach This paper used daily data ranging from January 31, 2020 to June 30, 2020 and considered BRIICS economies. The study implemented the Toda–Yamamoto’s Granger causality approach to identify the causality between interest rate differentials and exchange rates. For robustness checks, the study used ARLD short-run dynamics to infer causal relations. Findings Overall, the results indicate that the interest rate differentials improve the predictability of subsequent exchange rate changes in all six BRIICS economies during the COVID-19 period wherein investors are forward-looking. The empirical results pass the robustness checks. Originality/value There is a lack of studies exploring the relationship between interest rate differentials and exchange rates in the presence of an unanticipated event such as the current pandemic. To the best of the authors’ knowledge, this is the first study to explore the causal linkages between interest rate differentials and expected change in exchange rates, focusing on the COVID-19 outbreak period.

scholarly journals Monetary determinants of deposit euroization in European post-transition countries

2013 ◽  
Vol 60 (1) ◽  
pp. 89-101
Author(s):  
Marina Tkalec
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Transition Economies ◽  
Long Run ◽  
Johansen Cointegration ◽  
Short Run ◽  
The Interest Rate ◽  
Interest Rate Differentials

This paper investigates the long-run and short-run relationship between deposit euroization in twelve European post-transition economies and two determinants of deposit euroization that are under the influence of monetary policy: the exchange rate and the interest rate differential. The link between deposit euroization, exchange rates and interest rate differentials is investigated using Johansen cointegration and error correction models for each country separately. The results suggest that changes in both monetary drivers have significant effects on deposit euroization and are therefore important for explaining and fighting deposit euroization. Differences between exchange rate regimes, fixed and managed vs. floating, seem to matter for deposit euroization.

scholarly journals The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk

2007 ◽  
Vol 97 (1) ◽  
pp. 89-117 ◽  
Author(s):  
Hanno Lustig ◽  
Adrien Verdelhan
Keyword(s):  
Interest Rate ◽  
Cross Section ◽  
Foreign Currency ◽  
Risk Premia ◽  
Excess Returns ◽  
Consumption Growth ◽  
High Interest Rate ◽  
Aggregate Consumption ◽  
High Interest ◽  
The Interest Rate

Aggregate consumption growth risk explains why low interest rate currencies do not appreciate as much as the interest rate differential and why high interest rate currencies do not depreciate as much as the interest rate differential. Domestic investors earn negative excess returns on low interest rate currency portfolios and positive excess returns on high interest rate currency portfolios. Because high interest rate currencies depreciate on average when domestic consumption growth is low and low interest rate currencies appreciate under the same conditions, low interest rate currencies provide domestic investors with a hedge against domestic aggregate consumption growth risk. (JEL E21, E43, F31, G11)

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

DETERMINAN INFLASI DI INDONESIA PERIODE 1980-2015

2016 ◽  
Vol 21 (1) ◽  
pp. 1-7
Author(s):  
Risna Risna
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Government Spending ◽  
Positive Impact ◽  
Secondary Data ◽  
Quantitative Approach ◽  
State Spending ◽  
Factors Affecting ◽  
The Interest Rate

This study aims to determine the effect of government spending, the money supply, the interest rate of Bank Indonesia against inflation.This study uses secondary data. Secondary data were obtained directly from the Central Bureau of Statistics and Bank Indonesia. It can be said that there are factors affecting inflationas government spending, money supply, and interest rates BI. The reseach uses a quantitative approach to methods of e-views in the data. The results of analysis of three variables show that state spending significantand positive impact on inflationin Indonesia, the money supply significantand negative to inflationin Indonesia, BI rate a significantand positive impact on inflation in Indonesia

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