Time-Varying Risk, Interest Rates, and Exchange Rates in General Equilibrium

Fernando Alvarez, Andrew Atkeson and Patrick Kehoe

The Review of Economic Studies, 2009, vol. 76, issue 3, 851-878

Abstract: Under mild assumptions, the data indicate that fluctuations in nominal interest rate differentials across currencies are primarily fluctuations in time-varying risk. This finding is an immediate implication of the fact that exchange rates are roughly random walks. If most fluctuations in interest differentials are thought to be driven by monetary policy, then the data call for a theory which explains how changes in monetary policy change risk. Here, we propose such a theory based on a general equilibrium monetary model with an endogenous source of risk variation—a variable degree of asset market segmentation. Copyright , Wiley-Blackwell.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (102)

Downloads: (external link)
http://hdl.handle.net/10.1111/j.1467-937X.2009.00537.x (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Time-varying risk, interest rates, and exchange rates in general equilibrium (2008)
Working Paper: Time-varying risk, interest rates and exchange rates in general equilibrium (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:76:y:2009:i:3:p:851-878

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().