Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/250315
Year of Publication: 
2020
Series/Report no.: 
Cardiff Economics Working Papers No. E2020/5
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
Firstly, we show that domestic prices of net importer countries incorporate a risk premium, driven by higher moments of future nominal exchange rate returns and secondly, using US dollar exchange rates against three currencies of major net exporting countries to the US such as Canada, Japan and the European Union, we find that the skewness of the future nominal exchange rate is the major and statistically robust moment-based factor of the deviations from purchasing power parity (PPP). Our estimates further suggest that only low and moderate exchange rate risks induce risk premia that drive deviations from PPP.
Subjects: 
Purchasing Power Parity
risk-aversion
exchange rate
downside risk
JEL: 
G15
F31
F41
Document Type: 
Working Paper

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