Risk Appetite and Exchange Rates
Hyun Song Shin,
Erkko Etula and
Tobias Adrian ()
No 311, 2010 Meeting Papers from Society for Economic Dynamics
We present evidence that the funding liquidity aggregates of U.S. financial intermediaries forecast exchange rate growth---at weekly, monthly, and quarterly horizons, both in-sample and out-of-sample, and for a large set of currencies. We estimate prices of risk using a cross-sectional asset pricing approach and show that U.S. dollar funding liquidity forecasts exchange rates because of its association with time-varying risk premia. We provide a theoretical foundation for a funding liquidity channel in an intertemporal equilibrium pricing model where the "risk appetite" of dollar-funded intermediaries fluctuates with the tightness of their balance sheet constraints. Our empirical evidence shows that this channel is separate from the more familiar "carry trade" channel.
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Working Paper: Risk appetite and exchange Rates (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:sed010:311
Access Statistics for this paper
More papers in 2010 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().