Exchange Rates Dynamics with Long-Run Risk and Recursive Preferences

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• 作者：Robert Kollmann (1) (2) (3) (4) (5)
  
  1. European Centre for Advanced Research in Economics and Statistics (ECARES) ; CP 114 ; Universit茅 Libre de Bruxelles ; 50 Av. Franklin Roosevelt ; 1050 ; Brussels ; Belgium
  2. Centre for Economic Polic Research (CEPR) ; 77 Bastwick Street ; London ; EC1V 3PZ ; UK
  3. Universit茅 Paris-Est ; 61 Avenue du G茅n茅ral de Gaulle ; 94010 ; Cr茅teil ; France
  4. Globalization and Monetary Policy Institute (Federal Reserve Bank of Dallas) ; 2200 N Pearl St ; Dallas ; 75201 ; TX ; USA
  5. Centre for Applied Macroeconomic Analysis (CAMA) ; Australian National University ; Lennox Crossing ; Canberra ; ACT 0200 ; Australia
  
• 关键词：Exchange rate ; Long ; run risk ; Recursive preferences ; Complete financial markets ; Financial frictions ; International risk sharing ; F31 ; F36 ; F41 ; F43 ; F44
• 刊名：Open Economies Review
• 出版年：2015
• 出版时间：April 2015
• 年：2015
• 卷：26
• 期：2
• 页码：175-196
• 全文大小：383 KB
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• 刊物类别：Business and Economics
• 刊物主题：Economics
  International Economics
  Development Economics
  
• 出版者：Springer Netherlands
• ISSN：1573-708X

文摘

Standard macro models fail to explain why real exchange rates are volatile and disconnected from macro aggregates. Recent research argues that models with persistent growth rate shocks and recursive preferences can solve that puzzle. I show that this result is highly sensitive to the structure of financial markets. When just a bond is traded internationally, then long-run risk generates insufficient exchange rate volatility. A long-run risk model with recursive preferences may generate realistic exchange rate volatility, if all agents efficiently share their consumption risk by trading in complete financial markets; however, this entails massive international wealth transfers, and excessive swings in net foreign asset positions. By contrast, a long-run risk, recursive-preferences model in which only a fraction of households trades in complete markets, while the remaining households lead hand-to-mouth lives, can generate realistic exchange rate and external balance volatility.