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What Does the Yield Curve Tell Us About Exchange Rate Predictability? (2009)
| Citations: | 11 - 0 self |
BibTeX
@MISC{Chen09whatdoes,
author = {Yu-chin Chen and et al.},
title = {What Does the Yield Curve Tell Us About Exchange Rate Predictability?},
year = {2009}
}
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Abstract
This paper uses information contained in the cross-country yield curves to test the asset-pricing approach to exchange rate determination, which models the nominal exchange rate as the discounted present value of its expected future fundamentals. Since the term structure of interest rates embodies information about future economic activity such as GDP growth and inflation, we extract the Nelson-Siegel (1987) factors of relative level, slope, and curvature from cross-country yield differences to proxy expected movements in future exchange rate fundamentals. Using monthly
Keyphrases
yield curve tell u exchange rate predictability gdp growth expected future fundamental present value nominal exchange rate future exchange rate fundamental asset-pricing approach term structure rate determination cross-country yield difference future economic activity relative level cross-country yield curve interest rate
