Puzzling exchange rate dynamics and delayed portfolio adjustment

• 成果类型: Article
• 署名作者: Bacchetta, Philippe; van Wincoop, Eric
• 署名单位: University of Lausanne; Swiss Finance Institute (SFI); Centre for Economic Policy Research - UK; University of Virginia; National Bureau of Economic Research
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2021.103460
• 发表日期: 2021
• 关键词: Fama puzzle; Delayed overshooting; Predictability reversal; Portfolio frictions

摘要

The objective of this paper is to show that the proposal by Froot and Thaler (1990) of delayed portfolio adjustment can account for a broad set of puzzles about the relationship between interest rates and exchange rates. The puzzles include: i) the delayed overshooting puzzle; ii) the forward discount puzzle (or Fama puzzle); iii) the predictability reversal puzzle; iv) the Engel puzzle (high interest rate currencies are stronger than implied by UIP); v) the forward guidance exchange rate puzzle; vi) the absence of a forward discount puzzle with long-term bonds. These results are derived analytically in a simple two-country model with portfolio adjustment costs. Quantitatively, this approach can match all targeted moments related to these puzzles. (C) 2021 Elsevier B.V. All rights reserved.