An Intermediation-Based Model of Exchange Rates

Semyon Malamud and Andreas Schrimpf
Additional contact information
Semyon Malamud: Ecole Polytechnique Federale de Lausanne, Centre for Economic Policy Research (CEPR), and Swiss Finance Institute
Andreas Schrimpf: Bank for International Settlements (BIS)

No 18-14, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We develop a general equilibrium model of decentralized international financial markets. In our model, financial intermediaries bargain with their customers and extract endogenous rents for providing access to foreign claims. The behavior of intermediaries, by tilting state prices, generates a non-linear risk structure in exchange rates. We use this risk structure to explicitly derive (i) a link between monetary and stabilization policies and safe haven properties of exchange rates; (ii) the global monetary spillover matrix; and (iii) deviations from covered interest rate parity (CIP), and show how all these effects depend on expectations about future monetary and stabilization policies.

Keywords: exchange rates; dollar; covered interest parity deviations; currency skew; currency crashes (search for similar items in EconPapers)
JEL-codes: E44 E52 F31 F33 G13 G15 G23 (search for similar items in EconPapers)
Pages: 91 pages
Date: 2018-03, Revised 2018-06
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: An Intermediation-Based Model of Exchange Rates (2024)
Working Paper: An intermediation-based model of exchange rates (2018)
Working Paper: An Intermediation-Based Model of Exchange Rates (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1814

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