Year: 2011
Type: report
Abstract: I explore the behavior of asset prices and the exchange rate in a two-country world.When the large country has bad news, the relative price of the small country's output declines.As a result, the small country's bonds are risky, and uncovered interest parity fails, with positive excess returns available to investors who borrow at the large country's interest rate and lend at the small country's interest rate.I use a diagrammatic approach to derive these and other results in a calibration-free way.
DOI: 10.3386/w17564
Author: Ian Martin
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1544469958