Bond Convenience Yields and Exchange Rate Dynamics

• 成果类型: Article
• 署名作者: Valchev, Rosen
• 署名单位: Boston College
• 刊物名称: AMERICAN ECONOMIC JOURNAL-MACROECONOMICS
• ISSN/ISSBN: 1945-7707
• DOI: 10.1257/mac.20170391
• 发表日期: 2020
• 页码: 124-166
• 关键词: monetary-policy; Time-variation; Carry trade; RISK; premium; liquidity; equity; explanation; puzzles; profits

摘要

This paper proposes a new explanation for the failure of Uncovered Interest Parity (UIP) that rationalizes both the classic UIP puzzle and the evidence that the puzzle reverses direction at longer horizons. In the model, excess currency returns arise as compensation for endogenous fluctuations in bond convenience yield differentials. Due to the interaction of monetary and fiscal policy, the impulse response of the equilibrium convenience yield is nonmonotonic, which generates the reversal of the puzzle. The calibrated model fits exchange rate dynamics very well. I also find direct evidence linking convenience yields to excess currency returns.