International risk cycles
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Verdelhan_International risk cycles.pdf
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388.65 KB
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Author(s)
Gourio, François
Siemer, Michael
Verdelhan, Adrien Frederic
Date Issued
October 2011
Journal
Journal of International Economics
Publisher
Elsevier
Citation
Gourio, François; Siemer, Michael and Verdelhan, Adrien. “International Risk Cycles.” Journal of International Economics 89, no. 2 (March 2013): 471–484. © 2011 Elsevier B.V.
Version
Author's final manuscript
Abstract
Recent work in international finance suggests that exchange rate puzzles can be accounted for if (1) aggregate uncertainty is time-varying, and (2) countries have heterogeneous exposures to a world aggregate shock. We embed these features in a standard two-country real business cycle framework, and calibrate the model to equity risk premia in low and high interest rates countries. Unlike traditional real business cycle models, our model generates volatile exchange rates, a large currency forward premium, “excess comovement” of asset prices relative to quantities, and an imperfect correlation between relative consumption growth and exchange rates. Our model implies, however, that high interest rate countries have smoother quantities, equity returns and interest rates than low interest rate countries, contrary to the data.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1016/j.jinteco.2011.10.001
