1,361 research outputs found
Risks for the Long Run and the Real Exchange Rate
No full textWe propose an equilibrium model that can explain a wide range of international finance puzzles, including the high correlation of international stock markets, despite the lack of correlation of fundamentals. We conduct an empirical analysis of our model, which combines cross-country-correlated long-run risk with Epstein and Zin preferences, using U.S. and U.K. data, and show that it successfully reconciles international prices and quantities, thereby solving the international equity premium puzzle. These results provide evidence suggesting a link between common long-run growth perspectives and exchange rate movements.
International asset pricing with recursive preferences
No full textFocusing on data from the United States and the United Kingdom, we document that both the anomaly identified by Backus and Smith, which concerns the low correlation between consumption differentials and exchange rates, and the forward premium anomaly, which concerns the tendency of high interest rate currencies to appreciate, have become more severe over time. Taking into account different capital mobility regimes, we show that these anomalies turn into general equilibrium regularities in a two‐country and two‐good economy with Epstein and Zin preferences, frictionless markets, and correlated long‐run growth prospects
International robust disagreement
No full textWe characterize the equilibrium of a two-country, two-good economy in which agents have opposite preference bias toward one of the two consumption goods and fear model misspecification. We document that disagreement about endowments' growth prospects is a persistent endogenous outcome of this class of economies
Recursive allocations and wealth distribution with multiple goods: existence, survivorship, and dynamics
No full textWe characterize the equilibrium of a complete markets economy with multiple agents featuring a preference for the timing of the resolution of uncertainty. Utilities are defined over an aggregate of two goods. We provide conditions under which the solution of the planner’s problem exists, and it features a nondegenerate invariant distribution of Pareto weights.We also show that perturbation methods replicate the salient features of our recursive risk-sharing scheme, provided that higher-order terms are included
BKK the EZ Way: international long-run growth news and capital flows
No full textWe study the response of international investment flows to short- and long-run growth news. Among developed G7 countries, positive long-run news for domestic productivity induces a net outflow of investments, in contrast to the effects of short-run growth shocks. We document that a standard Backus, Keho, and Kydland (1994)(BKK)model fails to reproduce this novel empirical evidence. We aug-ment this model with Epstein and Zin (1989) preferences (EZ-BKK)and characterize the resulting recursive risk-sharing scheme. The response of international capital flows in the EZ-BKK model is con-sistent with the data
Volatility risk pass-through
No full textWe develop a novel measure of volatility pass-through to assess international propagation of output volatility shocks to macroeconomic aggregates, equity prices, and currencies. An increase in country’s output volatility is associated with a decrease in its output, consumption, and net exports. The average consumption pass-through is 50% (a 1% increase in output volatility increases consumption volatility by 0.5%) and it increases to 70% for shocks originating in smaller countries. The equity volatility pass-through is 90%. A novel channel of risk sharing of volatility risks can explain our empirical findings
Currency risk factors in a recursive multicountry economy
No full textFocusing on the 10 most traded currencies, we provide empirical evidence regarding a significant heterogeneous exposure to global growth news shocks. We incorporate this empirical fact in a frictionless risk‐sharing model with recursive preferences, multiple countries, and multiple consumption goods whose supply features both global and local short‐ and long‐run shocks. Since news shocks are priced, heterogeneous exposure to long‐lasting global growth shocks results in a relevant reallocation of international resources and currency adjustments. Our unified framework replicates the properties of the HML‐FX and HML‐NFA carry‐trade strategies studied by Lustig, Roussanov, and Verdelhan and Della Corte, Riddiough, and Sarno
Chapter Profilo minimo dell’opera di Riccardo Del Punta (1957-2022)
No full textThe author reconstructs and comments on the scientific production of Riccardo del Punta, examining his style, influences, lines of research, and legacy for labour law
Volatility (dis)connect in international markets
No full textLack of co-movement between consumption differentials and real exchange rates is a traditional indicator of a disconnect of foreign exchange markets from economic fundamentals. We present novel empiricial evidence for the disconnect between the volatilities, as opposed to the levels, of these variables. The volatility correlations are below one, but they are larger than the level correlations. We discuss the economics of volatility disconnect anomaly in settings with complete and incomplete markets, and provide an explanation of our empirical findings based on international risk-sharing of expected growth and volatility news shocks
- …
