Real exchange rate persistence and the excess return puzzle: The case of Switzerland versus the US
Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
Standard
Real exchange rate persistence and the excess return puzzle : The case of Switzerland versus the US. / Juselius, Katarina; Assenmacher, Katrin.
I: Journal of Applied Econometrics, Bind 32, Nr. 6, 2017, s. 1145–1155 .Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
Harvard
APA
Vancouver
Author
Bibtex
}
RIS
TY - JOUR
T1 - Real exchange rate persistence and the excess return puzzle
T2 - The case of Switzerland versus the US
AU - Juselius, Katarina
AU - Assenmacher, Katrin
PY - 2017
Y1 - 2017
N2 - The PPP puzzle refers to the wide swings of nominal exchange rates around their long-run equilibrium values whereas the excess return puzzle represents the persistent deviation of the domestic-foreign interest rate differential from the expected change in the nominal exchange rate. Using the I(2) cointegrated VAR model, much of the excess return puzzle disappears when an uncertainty premium in the foreign exchange market, proxied by the persistent PPP gap, is introduced. Self-reinforcing feedback mechanisms seem to cause the persistence in the Swiss-US parity conditions. These results support imperfect knowledge based expectations rather than so-called "rational expectations".
AB - The PPP puzzle refers to the wide swings of nominal exchange rates around their long-run equilibrium values whereas the excess return puzzle represents the persistent deviation of the domestic-foreign interest rate differential from the expected change in the nominal exchange rate. Using the I(2) cointegrated VAR model, much of the excess return puzzle disappears when an uncertainty premium in the foreign exchange market, proxied by the persistent PPP gap, is introduced. Self-reinforcing feedback mechanisms seem to cause the persistence in the Swiss-US parity conditions. These results support imperfect knowledge based expectations rather than so-called "rational expectations".
U2 - 10.1002/jae.2562
DO - 10.1002/jae.2562
M3 - Journal article
AN - SCOPUS:85013664551
VL - 32
SP - 1145
EP - 1155
JO - Journal of Applied Econometrics
JF - Journal of Applied Econometrics
SN - 0883-7252
IS - 6
ER -
ID: 177085610