Time-Varying Exchange Rate Risk Premium

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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange Rate Premium, Foreign Exchange Intervention, Forward Contract
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies

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