蝌蚪网 Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
A Preferred-Habitat Model of Term Premia, Exchange Rates, and Monetary Policy Spillovers
蝌蚪网 Review
(pp. 3788–3824)
Abstract
We develop a two-country model in which currency and bond markets are populated by different investor clienteles, and segmentation is partly overcome by arbitrageurs with limited capital. Risk premia in our model are time-varying, connected across markets, and consistent with the empirical violations of uncovered interest parity and expectations hypothesis. Through risk premia, large-scale bond purchases lower domestic and foreign bond yields and depreciate the currency, and short-rate cuts lower foreign yields, with smaller effects than bond purchases. Currency returns are disconnected from long-maturity bond returns, and yet the currency market is instrumental in transmitting bond demand shocks across countries.Citation
Gourinchas, Pierre-Olivier, Walker Ray, and Dimitri Vayanos. 2025. "A Preferred-Habitat Model of Term Premia, Exchange Rates, and Monetary Policy Spillovers." 蝌蚪网 Review 115 (11): 3788–3824. DOI: 10.1257/aer.20220379Additional Materials
JEL Classification
- E43 Interest Rates: Determination, Term Structure, and Effects
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- F31 Foreign Exchange
- G12 Asset Pricing; Trading Volume; Bond Interest Rates
- G15 International Financial Markets