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U.S. Dollar Dynamics [electronic resource] : How Important Are Policy Divergence and FX Risk Premiums?. / Ravi Balakrishnan.

Author/Creator:
Balakrishnan, Ravi.
Publication:
Washington, D.C. : International Monetary Fund, 2016.
Series:
IMF eLibrary
IMF Working Papers
IMF Working Papers
Format/Description:
Government document
Book
1 online resource (47 p.)
Local subjects:
US Dollar
United States
Foreign Exchange
Risk Premium
External Shocks
Summary:
We investigate the drivers of dynamics of major U.S. FX bilaterals. We first construct a novel measure of FX risk premiums using Consensus exchange rate forecasts. We then use VAR analysis to show that (i) risk premium shocks play a key role in driving dynamics of the major U.S. FX bilaterals; (ii) longer-term interest differentials also matter, especially for the Canadian and the Euro; (iii) oil price shocks play a particularly important role for the Canadian (an oil exporter); and (iv) risk appetite shocks (e.g., VIX shocks) generally lead to U.S. dollar appreciation. The importance of risk premium and longer-term interest differential shocks fit well with a simple theoretical model and are supported by recent event studies.
Notes:
Part of the IMF eLibrary collection.
Description based on print version record.
Contributor:
Balakrishnan, Ravi.
Other format:
Print Version: Balakrishnan, Ravi U.S. Dollar Dynamics: How Important Are Policy Divergence and FX Risk Premiums?
ISBN:
1498348416
9781498348416
ISSN:
1018-5941
Publisher Number:
10.5089/9781498348416.001 doi
Access Restriction:
Restricted for use by site license.
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