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La Transición al Euro y la Prima de Riesgo en el Mercado de Divisas

The goal of this paper is to identify the main determinants of the risk premium in some European currency markets just before the EMU. To do this the authors propose an exchange rate model and derive a formula for the forward premium. This formula includes money and production variables and is quite standard, except for the inclusion of macroeconomic policy risk. This inclusion is the main theoretical contribution of the paper. Under some standard assumptions, this formula simplifies substantially and becomes amenable to regression analysis. Then, using standard measures of money and production and the interest rate swaps, which are intended to be measures of macroeconomic policy risk, the regression is estimated. This inclusion is the main empirical contribution of the paper.

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File URL: http://eprints.ucm.es/7710/1/0306.pdf
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Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 0306.

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Length: 43 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:ucm:doicae:0306
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  1. Geert Bekaert & Robert J. Hodrick, 1991. "Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets," NBER Working Papers 3790, National Bureau of Economic Research, Inc.
  2. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  3. Carlo A. Favero & Francesco Giavazzi & Fabrizio Iacone & Guido Tabellini, . "Extracting Information from Asset Prices: the Methodology of EMU Calculators," Working Papers 113, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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