Government policy approval and exchange rates

• 成果类型: Article
• 署名作者: Liu, Yang; Shaliastovich, Ivan
• 署名单位: University of Hong Kong; University of Wisconsin System; University of Wisconsin Madison
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.06.031
• 发表日期: 2022
• 页码: 303-331
• 关键词: Exchange rate; Government policy; Risk premium

摘要

Measures of US government policy approval are strongly related to persistent fluctuations in the dollar value. Contemporaneous correlations between approval ratings and the dollar approach 50% against advanced economy currencies. High approval ratings further forecast a decline in the dollar risk premium several years ahead and are associated with a persistent increase in economic growth and a reduction in economic volatility. We provide an illustrative model to interpret our empirical evidence. In the model, policy valuations (approvals) are forward-looking and increase at times of high expected policy-related growth and low policy-related uncertainty, which are times of a strong dollar and low dollar risk premium. (c) 2021 Elsevier B.V. All rights reserved.