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Time-Varying forward bias and the volatility of risk premium: a monetary explanation

Lafuente Luengo, Juan Ángel and Ruiz Andújar, Jesús (2002) Time-Varying forward bias and the volatility of risk premium: a monetary explanation. [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 0214, 2002, ]

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Abstract

La insesgadez del tipo de cambio forward es rechazada para los mercados cambiarios internacionales. Este trabajo propone un modelo de equilibrio general dinámico y estocástico que genera variabilidad suficiente en las magnitudes de los excesos de rendimientos predecibles. Los ejercicios de simulación realizados sugieren que una alta persistencia de la política monetaria produce un mayor sesgo en el coeficiente estimado de la pendiente de la regresión entre la primera diferencia del logaritmo del tipo de cambio spot sobre la prima forward. Además, nuestro modelo sugiere que la naturaleza de la transmisión entre shocks monetarios puede explicar la paradoja del exceso de rendimiento. Por último, proporcionamos evidencia empírica de acuerdo con nuestros resultados teóricos para el tipo de cambio entre EEUU y Reino Unido.
ABSTRACT: Forward exchange rate unbiassedness is rejected for international exchange markets. This paper proposes
a stochastic general equilibrium model which generates substantial variability in the magnitude of predictable excess returns. Simulation exercises suggest that high persistency in the monetary policy produces greater bias in the estimated slope coefficient in the regression of the change in the logarithm of the spot exchange rate on the forward premium. Also, our model suggest that the nature of the transmission between monetary shocks can explain the excess return puzzle. Empirical evidence for the US-UK exchange rate according to our theoretical results is provided.


Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Proceso de calibración, Sector público, Consumo público, Uso Eficiente de las Infraestructuras
Subjects:Social sciences > Economics > Public economy
Series Name:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2002
Number:0214
ID Code:7671
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Deposited On:10 Mar 2008
Last Modified:06 Feb 2014 07:55

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