Munich Personal RePEc Archive

Time-Varying Exchange Rate Risk Premium

D.M.Nguyen, Anh and Dai Hung, Ly (2019): Time-Varying Exchange Rate Risk Premium.

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Abstract

We characterize the exchange rate risk premium on the context of a small open economy with controlled floating exchange rate regime. The data set includes 100 observations on case of Vietnam over 01/2011-04/2019. The risk premium is varying over time. And it is determined by output growth rate, inflation rate, foreign capital inflows and liquidity supply. As one application, the existence of time varying risk premium reduces the effectiveness of foreign exchange market intervention by forward contract.

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