 Macroeconomic sources of foreign exchange risk in new EU membersEvžen Kočenda and Tigran Poghosyan Journal of Banking & Finance, 2009, vol. 33, issue 11, 2164-2173 Abstract: We address the issue of foreign exchange risk and its macroeconomic determinants in several new EU members. We derive the observable macroeconomic factors--consumption and inflation--using the stochastic discount factor (SDF) approach. The joint distribution of excess returns in the foreign exchange market and the factors are modeled using a multivariate GARCH-in-mean specification. Our findings show that both real and nominal factors play important roles in explaining the variability of the foreign exchange risk premium. Both types of factors should be included in monetary general equilibrium models employed to study excess returns. To contribute to the further stability of domestic currencies, the new EU members should strive to implement stabilization policies aimed at achieving nominal as well as real convergence with the core EU members. Keywords: Foreign; exchange; risk; Time-varying; risk; premium; Stochastic; discount; factor; Multivariate; GARCH-in-mean; New; EU; member; countries (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:33:y:2009:i:11:p:2164-2173 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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