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What does the yield curve tell us about exchange rate predictability?

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dc.contributorVirginia Techen
dc.contributor.authorChen, Yu-Chinen
dc.contributor.authorTsang, Kwok Pingen
dc.contributor.departmentEconomicsen
dc.date.accessed2014-02-05en
dc.date.accessioned2014-02-21T14:20:15Zen
dc.date.available2014-02-21T14:20:15Zen
dc.date.issued2013-03en
dc.description.abstractSince the term structure of interest rates embodies information about future economic activity, we extract relative Nelson-Siegel (1987) factors from cross-country yield curve differences to proxy expected movements in future exchange rate fundamentals. Using monthly data for the United Kingdom, Canada, Japan, and the United States, we show that the yield curve factors predict exchange rate movements and explain excess currency returns one month to two years ahead. Our results provide support for the asset pricing formulation of exchange rate determination and offer an intuitive explanation to the uncovered interest parity puzzle by relating currency risk premiums to inflation and business cycle risks.en
dc.identifier.citationChen, Yu-Chin; Tsang, Kwok Ping. "What does the yield curve tell us about exchange rate predictability?" Rev. Econ. Stat., 95 (1) (2013), pp. 185-205 doi:10.1162/REST_a_00231en
dc.identifier.doihttps://doi.org/10.1162/REST_a_00231en
dc.identifier.issn0034-6535en
dc.identifier.urihttp://hdl.handle.net/10919/25507en
dc.identifier.urlhttp://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00231en
dc.language.isoen_USen
dc.publisherMIT Pressen
dc.rightsIn Copyrighten
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/en
dc.subjectterm structure modelsen
dc.subjectinterest-rate parityen
dc.subjectmonetary-policyen
dc.subjectexpectationsen
dc.subjectinflationen
dc.subjectmacroeconomicsen
dc.subjectfundamentalsen
dc.subjectregressionsen
dc.subjectdynamicsen
dc.subjectpuzzlesen
dc.titleWhat does the yield curve tell us about exchange rate predictability?en
dc.title.serialReview of Economics and Statisticsen
dc.typeArticleen

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