Where is the risk?

The forward premium bias, the carry-trade premium, and risk-reversals in general equilibrium.
  • 23 Junio 2017

Por Kimberly A. Berg (Miami University, Ohio) y Nelson C. Mark (University of Notre Dame)

Working paper May 2017

Abstract

This paper builds a two-country dynamic stochastic general equilibrium macro model to understand three empirical facts about international currency returns. They are the downward forward premium bias, the carry trade return, and the long-run risk reversal. A model with incomplete markets, country heterogeneity in productivity, and country heterogeneity in monetary policies is qualitatively consistent with these facts.

Descargar artículo completo