Title

Exchange Rates and Asset Prices in a Global Demand System

Author(s)

Ralph S. J. Koijen Ralph Koijen (University of Chicago)

Motohiro Yogo Motohiro Yogo (Princeton University)

Abstract

Using international holdings data, we estimate a demand system for financial assets across 36 countries. The demand system provides a unified framework for decomposing variation in exchange rates, long-term yields, and stock prices, interpreting major economic events such as the European sovereign debt crisis, and estimating the convenience yield on US assets. Macro variables and policy variables (i.e., short-term rates, debt quantities, and foreign exchange reserves) account for 55 percent of the variation in exchange rates, 57 percent of long-term yields, and 69 percent of stock prices. The average convenience yield is 2.15 percent on US long-term debt and 1.70 percent on US equity.

Creation Date

2020-06

Section URL ID

Paper Number

2020-33

URL

https://www.nber.org/system/files/working_papers/w27342/w27342.pdf

File Function

Jel

E52, F31, G12

Keyword(s)

demand system, international

Suppress

false

Series

13