| Full text | |
| Author(s): |
Total Authors: 2
|
| Affiliation: | [1] Univ Sao Paulo, Dept Econ, Av Bandeirantes 3900, Ribeirao Preto, SP - Brazil
[2] Univ Fed Ceara, Dept Econ, Av Univ 2760, Fortaleza, Ceara - Brazil
Total Affiliations: 2
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| Document type: | Journal article |
| Source: | INTERNATIONAL REVIEW OF ECONOMICS & FINANCE; v. 70, p. 154-167, NOV 2020. |
| Web of Science Citations: | 0 |
| Abstract | |
Our empirical investigation reveals that the variance of foreign consumption is much higher than the variance of domestic consumption growth for the domestic United States of America (US) resident. We show that precautionary savings in foreign currency arise because of this volatility differential between domestic and imported consumption growth. These open economy stochastic discount factors are later shown to be strongly positively correlated with the US business cycle. We present evidence that the precautionary currency risk must be seen through the lens of an open economy model rather than the traditional durable/non-durable closed economy separation. (AU) | |
| FAPESP's process: | 12/11720-1 - Currency risk and transaction costs in the Brazilian treasury market |
| Grantee: | Alex Luiz Ferreira |
| Support Opportunities: | Scholarships abroad - Research |