Exchange rate risk, distribution asymmetry and deviations from purchasing power parity

Arbeitspapier

Firstly, we show that domestic prices of net importer countries incorporate a risk premium, driven by higher moments of future nominal exchange rate returns and secondly, using US dollar exchange rates against three currencies of major net exporting countries to the US such as Canada, Japan and the European Union, we find that the skewness of the future nominal exchange rate is the major and statistically robust moment-based factor of the deviations from purchasing power parity (PPP). Our estimates further suggest that only low and moderate exchange rate risks induce risk premia that drive deviations from PPP.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Cardiff Economics Working Papers ; No. E2020/5

Classification and Topics

• Classification: Wirtschaft ; International Financial Markets ; Foreign Exchange ; Open Economy Macroeconomics
• Subject: Purchasing Power Parity ; risk-aversion ; exchange rate ; downside risk

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Arghyrou, Michael Georgiou ; Lu, Wenna ; Pourpourides, Panayiotis M.
• Event: Veröffentlichung
• (who): Cardiff University, Cardiff Business School
• (where): Cardiff
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/250315
• Last update: 10.03.2025, 11:44 AM CET