Moritz Lenel:Exchange Rates, Natural Rates, and the Price of Risk

Seminar
  • Date and time: Wednesday 15 January 2025, 1pm to 2pm
  • Location: Online only
  • Audience: Open to staff, students
  • Admission: Free admission, booking not required

Event details

Author: Moritz Lenel (Princeton)

Abstract:  We study the source of exchange rate fluctuations using a general equilibrium model accommodating shocks in goods and financial markets.  These shocks differ in their induced comovements between exchange rates, interest rates, and quantities.  A calibration matching data from the U.S. and G10 currency countries implies that persistent shocks to relative demand, reflected in persistent interest rate differentials, account for 75% of the variance in the dollar/G10 exchange rate.   Shocks to currency intermediation are important, however, in generating deviations from uncovered interest parity at high frequencies and explaining the dollar appreciation in crises.

Co-author:  Rohan Kekre (Chicago)

Host:  Andrea Papadia (York)