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On the Asset Market View of Exchange Rates / A. Craig Burnside, Jeremy J. Graveline.
- Format:
- Book
- Author/Creator:
- Burnside, A. Craig.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w18646.
- NBER working paper series no. w18646
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2012.
- Summary:
- If the asset market is complete then the difference between foreign and domestic agents' log intertemporal marginal rates of substitution (IMRSs) equals the log change in the real exchange rate. This equation is frequently used to argue that changes in real exchange rates reflect differences between agents' required compensation for exposure to asset return uncertainty. We show that the relative returns on frictionlessly traded assets are only reflected in the common component of agents' IMRSs, not differences. Instead, when this equation does offer insights, frictions in the goods market are the source of economic distinction between agents.
- Notes:
- Print version record
- December 2012.
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