Why are exchange rates so smooth? A household finance explanation

• 成果类型: Article
• 署名作者: Chien, YiLi; Lustig, Hanno; Naknoi, Kanda
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - St. Louis; Stanford University; University of Connecticut
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2019.02.003
• 发表日期: 2020
• 页码: 129-144
• 关键词: Asset pricing; market segmentation; Exchange rates; International risk sharing

摘要

Empirical moments of asset prices and exchange rates imply that pricing kernels are almost perfectly correlated across countries. Otherwise, observed real exchange rates would be too smooth for high Sharpe ratios. However, the cross-country correlation among macro fundamentals is weak. We reconcile these facts in a two-country stochastic growth model with heterogeneous households and a home bias in consumption. In our model, only a small fraction of households trade domestic and foreign equities. We show that this mechanism can quantitatively account for the smoothness of exchange rates in the presence of volatile pricing kernels and weakly correlated macro fundamentals. (C) 2019 Elsevier B.V. All rights reserved.