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The foreign exchange risk premium in a target zone with devaluation risk

Article Abstract:

A study was conducted on the foreign exchange risk premium using a partial equilibrium model of portfolio choice with rates of return and a specific exchange rate target zone with risks of realignment and devaluation. Foreign exchange risk premium is the anticipated price of return differential between reciprocal bonds or deposits categorized in different currencies. Results show that the risk premium coming from exchange rate movement inside narrow bands and devaluation risks are insignificant compared with the expected price of devaluation.

Author: Svensson, Lars E.O.
Publisher: Elsevier Science Publishers
Publication Name: Journal of International Economics
Subject: Economics
ISSN: 0022-1996
Year: 1992
Return on investment, Rate of return

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An interpretation of recent research on exchange rate target zones

Article Abstract:

Exchange rate target zones are fixed rate regimes with finite bands that allow a certain degree of fluctuation. Research on the subject was initiated with the development of the Krugman model. Extensions of the model reveal that exchange rate target zones with minimal intervention is ineffective. Actual rate fluctuations show that frequent mean-reverting intervention on the target exchange rate level is more realistic.

Author: Svensson, Lars E.O.
Publisher: American Economic Association
Publication Name: Journal of Economic Perspectives
Subject: Economics
ISSN: 0895-3309
Year: 1992
Prices and rates, Foreign exchange rates, Foreign exchange market

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Escaping from a liquidity trap and deflation: the foolproof way and others

Article Abstract:

The proposals, which provide a number of alternatives that can be used to escape from a liquidity trap and deflation, are discussed. Comparison is made between Orphanides and Wielands proposal to expand the monetary base.

Author: Svensson, Lars E.O.
Publisher: American Economic Association
Publication Name: Journal of Economic Perspectives
Subject: Economics
ISSN: 0895-3309
Year: 2003
Monetary policy, Liquidity (Finance), Deflation (Finance), Deflation (Economics)

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Subjects list: Analysis, Foreign exchange
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