Joint work with Reinout De Bock. That was finally released as IMF Working Paper 13/8.
Abstract:
Abstract:
Episodes of increased global risk aversion,
also known as risk-off episodes, have become more frequent and severe since
2007. During these episodes, currency markets exhibit recurrent patterns, as the
Japanese yen, Swiss franc, and U.S. dollar appreciate against other G-10 and
emerging market currencies. The pattern of these moves can be explained by a
combination of fundamental factors, such as the nominal interest rate, the international
investment position and measures of exchange rate misalignment, and market-liquidity factors,
such as bid-offer spreads and restrictions on international capital flows.
We also find that currency performance in a risk-off episode has become more
related to a currency’s yield and relationship to broader risks in recent
years.
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