Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/123131 
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper No. 5490
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
The paper shows that currencies of countries with persistent current account surpluses and high foreign-currency denominated assets, such as the Swiss franc and the Japanese yen, are under persistent appreciation pressure, particularly when the centres of the world monetary system follow expansionary monetary policies. This limits the choice of exchange rate regime. Given flexible exchange rates, a negative risk premium on the domestic interest rate can emerge. Empirical estimations provide mixed evidence for a negative impact of net foreign asset positions and exchange rate uncertainty on interest rates of international creditor countries at the periphery of the world monetary system.
Subjects: 
Swiss franc
Japanese yen
exchange rate risk
negative risk premium
self-fulfilling expectations
appreciation pressure
JEL: 
F15
F31
F33
Document Type: 
Working Paper
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