- Title
- Exchange Rates, Natural Rates, and the Price of Risk
- Author(s)
- Rohan Kekre Rohan Kekre (Chicago Booth and NBER)
- Moritz Lenel Moritz Lenel (Princeton University and NBER)
- Abstract
- We study the source of exchange rate fluctuations using a general equilibrium model accommodating shocks in goods and financial markets. These shocks differ in their induced co-movements between exchange rates, interest rates, and quantities. A calibration matching data from the U.S. and G10 currency countries implies that persistent shocks to relative demand, reflected in persistent interest rate differentials, account for 75% of the variance in the dollar/G10 exchange rate. Shocks to currency intermediation are important, however, in generating deviations from uncovered interest parity at high frequencies and explaining the dollar appreciation in crises.
- Creation Date
- 2024-09
- Section URL ID
- Paper Number
- URL
- https://drive.google.com/file/d/1cP1agwca5sl_8oApm55hOSZ5Q3EzQt-m/view
- File Function
- Jel
- E44, F31, G15
- Keyword(s)
- exchange rates, interest rates, uncovered interest parity
- Suppress
- false
- Series
- 13