Liquidity premia, interest rates and exchange rate dynamics
| dc.contributor.author | Hörmann, Markus | |
| dc.date.accessioned | 2011-04-12T12:36:48Z | |
| dc.date.available | 2011-04-12T12:36:48Z | |
| dc.date.issued | 2011-04-12 | |
| dc.description.abstract | Empirical failure of uncovered interest rate parity (UIP) has become a stylized fact. VARs by Eichenbaum and Evans (1995) and Scholl and Uhlig (2008) find delayed overshooting of the exchange rate in response to a monetary shock. This result contradicts Dornbusch’s (1976) original overshooting, which is based on UIP. This paper presents a model in which assets eligible for central bank’s open market operations, such as government bonds, command liquidity premia. Further, I allow for a key currency which is required to participate in international goods trade. Therefore, assets allowing access to key currency liquidity are held by agents around the globe. I show that liquidity premia lead to a modified UIP condition. In response to a monetary policy shock, the model predicts delayed overshooting of the nominal exchange rate, as in Eichenbaum and Evans (1995). | en |
| dc.identifier.uri | http://hdl.handle.net/2003/27682 | |
| dc.identifier.uri | http://dx.doi.org/10.17877/DE290R-13407 | |
| dc.language.iso | en | de |
| dc.relation.ispartofseries | Discussion Paper / SFB 823;15/2011 | |
| dc.subject | monetary policy | en |
| dc.subject | uncovered interest rate parity | en |
| dc.subject | liquidity premium | en |
| dc.subject | key currency | en |
| dc.subject.ddc | 310 | |
| dc.subject.ddc | 330 | |
| dc.subject.ddc | 620 | |
| dc.title | Liquidity premia, interest rates and exchange rate dynamics | en |
| dc.type | Text | de |
| dc.type.publicationtype | workingPaper | de |
| dcterms.accessRights | open access |