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Bond risk premia, macroeconomic fundamentals and the exchange rate

  • Pericoli, Marcello
  • Taboga, Marco

We propose a two-country no-arbitrage term-structure model to analyze the joint dynamics of bond yields, macroeconomic variables and the exchange rate. The model allows to understand how exogenous shocks to the exchange rate affect the yield curves, how bond yields co-move in different countries and how the exchange rate is influenced by interest rates, macro-economic variables and time-varying bond risk premia.

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File URL: http://www.sciencedirect.com/science/article/pii/S1059056011000943
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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 22 (2012)
Issue (Month): 1 ()
Pages: 42-65

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Handle: RePEc:eee:reveco:v:22:y:2012:i:1:p:42-65
DOI: 10.1016/j.iref.2011.08.008
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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