【Macro Seminar】Exchange Rate and Fundamentals: What Does General Equilibrium Estimation Tell us?

  • 研討會日期 : 2024-03-19
  • 時間 : 14:30
  • 主講人 : Prof. Yu-chin Chen
  • 地點 : Conference Room B110
  • 主持人 : Professor Wen-Jen Tsay
  • 演講者簡介 : Professor Yu-chin Chen received her PhD from Harvard University in 2002. She is currently an Associate Professor at the University of Washington. Her research interests are International Finance, Open Economy Macroeconomics, and International Trade.
  • 演講摘要 : This paper uses Bayesian general equilibrium (GE) estimations to evaluate the empirical contributions of stochastic volatilities and limits-to-arbitrage in explaining the USD-Euro dynamics and the uncovered interest rate parity (UIP) puzzle. Solving our two-country New Keynesian DSGE model with 3rd-order approximations, we estimate the GE system directly and find that level- and volatility-shocks to macroeconomic fundamentals together can account for over 40% of the observed exchange rate variations, contrary to the classic disconnect result. We also confirm previous simulation-based findings that conditionally, individual shocks to macro volatilities and to international risk-sharing can both induce negative correlations between the rates of currency depreciation and cross-country interest differentials, bridging the model with the low or negative Fama coefficients observed empirically. However, unconditionally, our estimates show neither mechanism to be quantitatively relevant or sufficient in resolving the UIP puzzle in GE settings. Our results highlight the shortfalls of model linearization and partial-equilibrium simulation-based analyses in understanding business-cycle frequency exchange rate behavior.