EconPapers    
Economics at your fingertips  
 

The Foreign Exchange Risk Premium: Real and Nominal Factors

Burton Hollifield () and Armir Yaron

No 2001-E13, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business

Abstract: This paper attempts to identify and isolate the channels by which inflation shocks effect the predictable returns available from currency speculation. We apply a general no--arbitrage based model to decompose the risk premium into inflation and real risk and their interactions. Using two different empirical methods to identify these components, we find that virtually none of the predictable variation in returns from currency speculation can be explained empirically by either inflation risk or the relationship between inflation and real risks. Our results imply that for monetary policy to have significant effects on the risk--premia for currency speculation, monetary policy must have little effect on inflation risk, the relationship between real risk and inflation risk, and instead must mainly impact real exchange rate risk.

New Economics Papers: this item is included in nep-ifn
References: Add references at CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
http://chinook.tepper.cmu.edu/greece-dec-v1.pdf
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to chinook.tepper.cmu.edu:80 (No such host is known. )

Related works:
Working Paper: The Foreign Exchange Risk Premium: Real and Nominal Factors (2001) Downloads
Working Paper: The Foreign Exchange Risk Premium: Real and Nominal Factors (1999)
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:cmu:gsiawp:-1655358232

Ordering information: This working paper can be ordered from
http://student-3k.te ... /gsiadoc/GSIA_WP.asp

Access Statistics for this paper

More papers in GSIA Working Papers from Carnegie Mellon University, Tepper School of Business Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890.
Bibliographic data for series maintained by Steve Spear ().

 
Page updated 2022-11-26
Handle: RePEc:cmu:gsiawp:-1655358232