International Risk Cycles

By François Gourio, Michael Siemer, A. Verdelhan. 2011

167 citations recorded by the source corpus.

Recent work in international finance suggests that the forward premium puzzle can be accounted for if (1) aggregate uncertainty is time-varying, and (2) countries have heterogeneous exposures to a world aggregate shock. We embed these features in a standard two-country real business cycle framework, and calibrate the model to match the differences between low and high interest rates countries. Unlike traditional real business cycle models, our model generates volatile exchange rates, a large currency forward premium, "excess comovement'' of asset prices relative to quantities, and an imperfect correlation between relative consumption growth and exchange rates. Our model implies, however, that high interest rate countries have smoother quantities, equity returns and interest rates than low interest rate countries, contrary to the data.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/294c6efa46363584cbfb47f60dda6115d29b020f

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Citations in the corpus

Forward and Spot Exchange Rates in a Multi-Currency World* (2018, unknown): “Following Lustig et al. (2011), we drop South Africa 8/1985 and Turkey before 11/2001 due to large covered interest parity departures we could not verify. Finally, we drop Malaysia 8/1998-6/2005 and Indonesia 1/2003-5/2007 because forward rates are zero. Our “1 Rebalance,” “3 Rebalance,” “6 Rebalanc”
Commodity Trade and the Carry Trade: a Tale of Two Countries (2017, background): “Gourio, Siemer, and Verdelhan (2013) and Colacito, Croce, Ho, and Howard (2013) study currency risk premia in fully dynamic production economies that could potentially be generalized to incorporate the type of heterogeneity we consider.”
Economic Policy Uncertainty Spillovers in Booms and Busts (2019, unknown): “Working with microfounded DSGE frameworks, Fernndez-Villaverde, Guerr´on-Quintana, Rubio-Ram´ırez, and Uribe (2011), Born and Pfeifer (2014), Gourio, Siemer, and Verdelhan (2013), Benigno, Benigno, and Nistic (2012), and Mumtaz and Theodoridis (2015) ﬁnd diﬀerent forms of volatility or uncertainty…”
Global spillover effects of US uncertainty (2017, unknown): “[21] Gourio, Francois, Michael Siemer, and Adrien Verdelhan (2013), International Risk Cycles, Journal of International Economics, 89, 471-484.”
Economic policy uncertainty and firm investment: evidence from the U.S. market (2019, background): “…E22; E66; G32 I. Introduction Many studies have examined the impact of economic policy uncertainty (EPU, hereafter) on economic performance, the business cycle, or firm capital investment (e.g. Bo and Lensin 2005; Bloom 2009; Carriere-Swallow and Cespedes 2013; Gourio, Siemer, and Verdelhan 2013).”
Common and country specific economic uncertainty (2017, background): “The work Colacito and Croce (2013), Kollmann (2015) and Gourio et al. (2013) has also employed recursive preferences and long-run risks in order to understand the correlation patterns between assets prices and macroeconomic aggregates observed in the data across countries. Similar to Benigno et al. ”
The Impact of Uncertainty Shocks in Emerging Economies (2013, unknown): “As Gourio, Siemer and Verdelhan (2010) point out, this justiﬁes the use of a common global uncertainty measure.”
Trade and Uncertainty (2014, background): “Gourio, Siemer, and Verdelhan (2013) examine the performance of G7 countries in response to heightened volatility.”