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The Portfolio-Balance Model of Exchange Rates and Some Structural Estimates of the Risk Premium (Modèle d'équilibre de portefeuilles appliqué aux taux de change et certaines estimations (structurelles) de la prime de risque) (El modelo de equilibrio de cartera para los tipos de cambio y algunas estimaciones estructurales de la prima de riesgo)

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Author Info

  • Michael P. Dooley

    (International Monetary Fund)

  • Peter Isard

    (International Monetary Fund)

Abstract

This paper focuses on the portfolio-balance model as a framework for addressing several unresolved issues about the behavior of exchange rates. A major objective is to contribute to an understanding of the relative importance of the different channels through which current account imbalances may influence exchange rates. A second objective is to provide structural estimates of the risk premium on a currency--defined as the difference between the expected rate of appreciation and the forward premium for that currency. The risk premium is shown to depend on budget deficits, current account imbalances, and official foreign exchange intervention. Observed forward premiums have been small relative to the changes in exchange rates that have occurred since March 1973. By itself, that fact does not necessarily imply that exchange rate changes have been predominantly unexpected, since risk premiums may be large. However, the interpretation presented here of the empirical evidence, using the portfolio-balance model, suggests that the risk premiums can explain only a small proportion of the discrepancies between forward premiums and observed changes in exchange rates. The conclusions that are suggested, therefore, are that risk premiums have not played a prominent role in exchange rate determination and that exchange rate changes have been largely unexpected by market participants. /// Le présent document porte essentiellement sur le modèle d'équilibre de portefeuille en tant que cadre d'analyse de plusieurs questions suggéré par le comportement des taux de change. Il a pour principal objectif de contribuer à une meilleure compréhension de l'importance relative des différentes voies par les-quelles les déséquilibres du compte des opérations courantes peuvent influer sur les taux de change. Il a également pour objectif de fournir des estimations de la prime de risque d'une monnaie -- définie comme la différence entre le taux d'appréciation prévu et le report donné pour cette monnaie à terme. Il apparaît que la prime de risque est fonction des déficits budgétaires, des déséquilibres des opérations courantes et des interventions officielles en devises. Les reports à terme observés ont été faibles par rapport aux variations de taux de change postérieures à mars 1973. Ce fait en soi ne suppose pas nécessairement que les variations de taux de change ont été pour l'essentiel imprévues, puisque les primes de risque peuvent être élevées. Cependant, selon l'interprétation des faits qui est donnée dans le présent document sur la base du modèle d'équilibre de portefeuille, les primes de risque ne peuvent expliquer qu'une faible partie des écarts entre les reports à terme et les variations de taux de change observées. En conséquence, les conclusions proposées sont les suivantes: les primes de risque n'ont pas joué un rôle prédominant dans la détermination du taux de change et, dans une large mesure, les variations des taux de change n'ont pas été prévues par ceux qui opèrent sur les marchés. /// Este artículo se centra en el modelo de equilibrio de cartera como marco conceptual para abordar varias cuestiones todavía no resueltas sobre el comportamiento de los tipos de cambio. Un objetivo importante es contribuir a una mejor comprensión de la importancia relativa de los diferentes cauces a través de los cuales los desequilibrios en cuenta corriente pueden influir en los tipos de cambio. Un segundo objetivo es el de facilitar estimaciones estructurales de la prima de riesgo en una determinada moneda, definida como la diferencia entre la tasa prevista de apreciación y la prima a término correspondiente a esa moneda. Se demuestra que la prima de riesgo depende de los déficit presupuestarios, de los desequilibrios en cuenta corriente y de la intervención oficial en divisas. Las primas a término observadas han sido pequeñas en relación con las variaciones de los tipos de cambio registradas desde marzo de 1973. De por sí, esto no significa necesariamente que las variaciones cambiarias hayan sido predominantemente imprevistas, dado que las primas de riesgo pueden ser elevadas. Sin embargo, la interpretación que aquí se ofrece de los datos empíricos, utilizando el modelo de equilibrio de cartera, indica que las primas de riesgo pueden explicar solamente una proporción reducida de las discrepancias entre las primas a término y las variaciones observadas de los tipos de cambio. Se sugiere, pues, en conclusión, que las primas de riesgo no han desempeñado un papel prominente en la determinación de los tipos de cambio y que las variaciones cambiarias han sido en su mayor parte imprevistas por los participantes en el mercado.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 30 (1983)
Issue (Month): 4 (December)
Pages: 683-702

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Handle: RePEc:pal:imfstp:v:30:y:1983:i:4:p:683-702

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Cited by:
  1. Sarno, Lucio & Taylor, Mark P, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective, and, If So, How Does It Work?," CEPR Discussion Papers 2690, C.E.P.R. Discussion Papers.

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