Economics at your fingertips  

Exchange Rate Disconnect Revisited

Ryan Chahrour, Vito Cormun, Pierre De Leo, Pablo Guerron and Rosen Valchev

No 1041, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We find that variation in expected U.S. productivity explains over half of G6 exchange rate fluctuations vis-a-vis the USD. Both correctly-anticipated changes in productivity and expectational “noise,” which influences expectations of productivity but not the actual realization, have significant effects on exchange rates. Together, these two types of disturbances explain many unconditional exchange rate patterns, including predictable excess returns, low Backus-Smith correlations, and excess volatility. Our findings suggest these well-known puzzles have a common empirical origin, which is linked to (expected) productivity. We also discuss how noise in expectations has obscured the relationship between exchange rates and fundamentals in the empirical approaches undertaken in prior work.

Keywords: Exchange Rate Disconnect; TFP News; Excess Returns; Excess Volatility (search for similar items in EconPapers)
JEL-codes: D8 F3 G1 (search for similar items in EconPapers)
Date: 2021-11-05, Revised 2023-05-12
New Economics Papers: this item is included in nep-opm
Note: previously circulated as "Exchange Rate Disconnect Redux"
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) main text (application/pdf)

Related works:
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:

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().

Page updated 2023-11-22
Handle: RePEc:boc:bocoec:1041