A Habit-Based Explanation of the Exchange Rate Risk Premium
This paper presents a model that reproduces the uncovered interest rate parity puzzle. Investors have preferences with external habits. Countercyclical risk premia and procyclical real interest rates arise endogenously. During bad times at home, when domestic consumption is close to the habit level,...
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| Format: | Article |
| Language: | English |
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American Finance Association/Wiley,
2013-01-09T19:29:08Z.
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| Online Access: | Get fulltext |