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Time-varying international diversification and the forward premium

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  • Jonen, Benjamin
  • Scheuring, Simon

Abstract

This paper reproduces the slope of the uncovered interest rate parity (UIP) regression for ten country pairs within one standard deviation under rational expectations. We propose an infinite horizon dynamic stochastic general equilibrium model with incomplete markets. Heterogeneous investors experience varying risk aversion as a result of habit formation.

Suggested Citation

  • Jonen, Benjamin & Scheuring, Simon, 2014. "Time-varying international diversification and the forward premium," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 128-148.
    • Handle: RePEc:eee:jimfin:v:40:y:2014:i:c:p:128-148
    DOI: 10.1016/j.jimonfin.2013.09.004
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