The real exchange rate, real interest rates, and the risk premium
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The real exchange rate, real interest rates, and the risk premium

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Published by National Bureau of Economic Research in Cambridge, MA .
Written in English


Book details:

Edition Notes

StatementCharles Engel
SeriesNBER working paper series -- working paper 17116, Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17116.
ContributionsNational Bureau of Economic Research
Classifications
LC ClassificationsHB1
The Physical Object
FormatElectronic resource
ID Numbers
Open LibraryOL25021674M
LC Control Number2011657317

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3. Real Interest Rates in Theory To try and explain the different real interest rate regimes of the past, we need a theory of what drives real interest rates. Let me dispense immediately with a fairly deeply rooted, but wrong, notion in modern macroeconomics, namely that real interest rates are primarily driven by the growth rate of the economy. strong link of the real exchange rate to news that alters the expected real interest differential – see, for example, Faust et al. (), Andersen et al. () and Clarida and Waldman (). The behavior of exchange rates and interest rates described here is closely associated. The Real Exchange Rate, Real Interest Rates, and the Risk Premium Charles Engel University of Wisconsin [email protected] Octo (First version ) Abstract The well-known uncovered interest parity puzzle arises from the empirical regularity that, among.   Exchange Rates, Interest Rates, and the Risk Premium by Charles Engel. Published in volume , issue 2, pages of American Economic Review, February , Abstract: The uncovered interest parity puzzle concerns the empirical regularity that high interest rate countries tend to have high expec.

  Exchange Rates, Interest Rates, and the Risk Premium. NBER Working Paper No. w 66 another strand of the literature has documented that high real interest rate countries tend to have currencies that are strong in real terms - indeed, stronger than can be accounted for by the path of expected real interest differentials under uncovered Cited by: The Real Exchange Rate, Real Interest Rates, and the Risk Premium Charles Engel University of Wisconsin Abstract The well-known uncovered interest parity puzzle arises from the empirical regularity that, among developed country pairs, the high interest rate country tends to have high expected returns on its short term by: Exchange Rates, Interest Rates and the Risk Premium. Charles Engel. Online Appendix. Table of Contents for the Appendix: A.1 Coefficient estimates from the VECMs. A.2 Bootstraps. A.3 Derivation of log-linearization for model with Epstein-Zin preferences. A.4 Verdelhan () model. A.5 Derivation of model based on Nagel (). Exchange Rates, Interest Rates, and the Risk Premium† By Charles Engel* The uncovered interest parity puzzle concerns the empirical regularity that high interest rate countries tend to have high expected returns on short term deposits. A separate puzzle is that high real interest rate countries tend to have currencies that are strongerCited by:

Exchange rates – last day of month (noon buy rates, NY) Prices – consumer price indexes Interest rates – 30‐day Eurodeposit rates (last day of month) Monthly, June – October (Unit root test for real exchange rates, uses data back to June, ) 8. In this context, the real interest rate differential can be interpreted as the spread variable in a present-value model in which the discount factor is known and equal to one. 1 This allows us to take the projection for the change in the real exchange rate from a bivariate VAR, consisting of the change in the real exchange rate and the real Cited by:   A real interest rate is an interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower and the real yield to the lender or to an. The well-known uncovered interest parity puzzle arises from the empirical regularity that, among developed country pairs, the high interest rate country tends to have high expected returns on its shortterm bonds. At the same time, another strand of the literature has documented that high real interest rate countries tend to have currencies that are strong in real terms -.