Time-varying international diversification and the forward premium

Benjamin Jonen and Simon Scheuring

Journal of International Money and Finance, 2014, vol. 40, issue C, 128-148

Abstract: This paper reproduces the slope of the uncovered interest rate parity (UIP) regression for ten country pairs within one standard deviation under rational expectations. We propose an infinite horizon dynamic stochastic general equilibrium model with incomplete markets. Heterogeneous investors experience varying risk aversion as a result of habit formation.

Keywords: Forward premium; Habits; International diversification (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:40:y:2014:i:c:p:128-148

DOI: 10.1016/j.jimonfin.2013.09.004

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