NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Michael Siemer

Board of Governors of the Federal Reserve System
Division of Research and Statistics
Macroeconomics and Quantitative Studies
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Institutional Affiliation: Federal Reserve Board

NBER Working Papers and Publications

August 2011International Risk Cycles
with François Gourio, Adrien Verdelhan: w17277
Recent work in international finance suggests that the forward premium puzzle can be accounted for if (1) aggregate uncertainty is time-varying, and (2) countries have heterogeneous exposures to a world aggregate shock. We embed these features in a standard two-country real business cycle framework, and calibrate the model to match the differences between low and high interest rates countries. Unlike traditional real business cycle models, our model generates volatile exchange rates, a large currency forward premium, "excess comovement'' of asset prices relative to quantities, and an imperfect correlation between relative consumption growth and exchange rates. Our model implies, however, that high interest rate countries have smoother quantities, equity returns and interest rates than low ...

Published: Gourio, François & Siemer, Michael & Verdelhan, Adrien, 2013. "International risk cycles," Journal of International Economics, Elsevier, vol. 89(2), pages 471-484. citation courtesy of

 
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