Arbeitspapier
Real exchange rate decompositions
We provide a novel daily decomposition of the real exchange rate that exploits a direct link between bond and foreign exchange (FX) markets. Real exchange rate dynamics can be attributed to changes in the expected future level of the exchange rate; cross-country differentials of expected inflation, yields and bond term premia; and an FX risk premium. Through a variance decomposition exercise, we find that the FX risk premium is the dominant component. Monetary policies and macroeconomic news announcements largely move the real exchange through changes in the FX risk premium.
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Canada Staff Discussion Paper ; No. 2022-6
- Classification
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Wirtschaft
Interest Rates: Determination, Term Structure, and Effects
Foreign Exchange
Asset Pricing; Trading Volume; Bond Interest Rates
- Subject
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Asset pricing
Exchange rates
International financial markets
Monetary policy transmission
- Event
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Geistige Schöpfung
- (who)
-
Feunou, Bruno
Fontaine, Jean-Sébastien
Krohn, Ingomar
- Event
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Veröffentlichung
- (who)
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Bank of Canada
- (where)
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Ottawa
- (when)
-
2022
- DOI
-
doi:10.34989/sdp-2022-6
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Feunou, Bruno
- Fontaine, Jean-Sébastien
- Krohn, Ingomar
- Bank of Canada
Time of origin
- 2022
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