skip to main content
US FlagAn official website of the United States government
dot gov icon
Official websites use .gov
A .gov website belongs to an official government organization in the United States.
https lock icon
Secure .gov websites use HTTPS
A lock ( lock ) or https:// means you've safely connected to the .gov website. Share sensitive information only on official, secure websites.

Explore Research Products in the PAR
It may take a few hours for recently added research products to appear in PAR search results.


Title: A Reconsideration of the Failure of Uncovered Interest Parity for the U.S. Dollar
We reexamine the time-series evidence on uncovered interest rate parity for the U.S. dollar versus major currencies at short-, medium- and long-horizons. The evidence that interest rate differentials predict foreign exchange returns is not stable over time and disappears altogether when interest rates are near the zero-lower bound. However, we find that year-on-year inflation rate differentials predict excess returns – when the U.S. y.o.y. inflation rate is relatively high, subsequent returns on U.S. deposits tend to be high. We interpret this as consistent with the hypothesis that markets underreact initially to predictable changes in future monetary policy. The predictive power of y.o.y. inflation begins in the mid-1980s when central banks began to target inflation consistently and continues in the post-ZLB period when interest rates lose their primacy as a policy instrument. We attempt to address some econometric problems that might bias the conventional Fama (1984) test.  more » « less
Award ID(s):
1918340
PAR ID:
10350278
Author(s) / Creator(s):
Date Published:
Journal Name:
Journal of international economics
Volume:
136
ISSN:
0022-1996
Format(s):
Medium: X
Sponsoring Org:
National Science Foundation
More Like this
  1. ; ; ; (, Journal of the European Economic Association)
    Abstract We compare causal effects of forward guidance about future interest rates on households’ expectations of inflation and nominal mortgage rates to the effects of communication about inflation in a randomized control trial using more than 20,000 U.S. consumers in the Nielsen Homescan Panel. We elicit consumers’ expectations, and then provide 22 different forms of information regarding past, current, and/or future interest rates and inflation. Information treatments about current or future interest rates all have similar and offsetting effects on interest rate and inflation expectations, yielding limited pass-through into perceived real rates. Information about mortgage rates has much more powerful effects on interest rate perceptions, with no offsetting effects on inflation expectations, thereby delivering much larger changes in perceived real rates. Revisions in perceived real rates causally lead to changes in the ex-post purchases of durable goods by households. 
    more » « less
  2. ; ; (, Journal of Applied Meteorology and Climatology)
    Qi, Hu (Ed.)
    Abstract A series of papers published since 1998 assert that U.S. tropical cyclone (TC) damage, when “normalized” for individual wealth, population, and inflation, exhibits no increase attributable to anthropogenic global warming (AGW). This result is here questioned for three reasons: 1) The then-year (no demographic or economic adjustments) U.S. TC damage increases 2.5% yr−1faster than U.S. then-year gross domestic product. This result, which is substantially due to the faster growth of assets in hurricane-prone states, shows that TC impacts on the total U.S. economy double every generation. 2) Fitting of an exponential curve to normalized damage binned by 5-yr “pentads” yields a growth rate of 1.06% yr−1since 1900, although causes besides AGW may contribute. 3) During the twenty-first century, when the Atlantic multidecadal oscillation (AMO) was in its warm phase, the most damaging U.S. TCs struck at twice the rate of the warm AMO of the twentieth century and 4 times the rate of the entire twentieth century, both warm and cool AMO phases. A key unanswered question is as follows: What will happen when (and if) the AMO returns to its cool phase later in this century? Significance StatementU.S. hurricane damage, normalized for changes in inflation, population, and wealth, increases by approximately 1% yr−1. For 1900–2022, 1% yr−1is equivalent to a factor of >3 increase, substantially but not entirely, attributable to climate change. The incidence of the most damaging tropical cyclones (TCs) approximately doubled in the twenty-first century compared with climatologically analogous periods of the twentieth century. These results contradict the previously published work that introduced normalization and found zero trend in normalized damage but are consistent with physical reasoning and modeling studies. 
    more » « less
  3. ; (, Econometrica)
    Imbens, Guido W (Ed.)
    We study the effect of interest rates on wealth inequality. While lower rates decrease the growth rate of rentiers, they also increase the growth rate of entrepreneurs by making it cheaper to raise capital. To understand which effect dominates, we derive a sufficient statistic for the effect of interest rates on the Pareto exponent of the wealth distribution: it depends on the lifetime equity and debt issuance rate of individuals in the right tail of the wealth distribution. We estimate this sufficient statistic using new data on the trajectory of top fortunes in the U.S. Overall, we find that the secular decline in interest rates (or more generally of required rates of returns) can account for about 40% of the rise in Pareto inequality; that is, the degree to which the super rich pulled ahead relative to the rich. 
    more » « less
  4. ; ; (, The Quarterly Journal of Economics)
    Abstract We estimate perceptions about the Federal Reserve’s monetary policy rule from panel data on professional forecasts of interest rates and macroeconomic conditions. The perceived dependence of the federal funds rate on economic conditions varies substantially over time, in particular over the monetary policy cycle. Forecasters update their perceptions about the Fed’s policy rule in response to monetary policy actions, measured by high-frequency interest rate surprises, suggesting that they have imperfect information about the rule. Monetary policy perceptions matter for monetary transmission, as they affect the sensitivity of interest rates to macroeconomic news, term premia in long-term bonds, and the response of the stock market to monetary policy surprises. A simple learning model with forecaster heterogeneity and incomplete information about the policy rule motivates and explains our empirical findings. 
    more » « less
  5. ; ; ; ; ; ; ; ; ; ; et al (, Econometrica)
    Using randomized control trials (RCTs) applied over time in different countries, we study whether the economic environment affects how agents learn from new information. We show that as inflation rose in advanced economies, both households and firms became more attentive and informed about publicly available news about inflation, leading them to respond less to exogenously provided information about inflation and monetary policy. We also study the effects of RCTs in countries where inflation has been consistently high (Uruguay) and low (New Zealand) as well as what happens when the same agents are repeatedly provided information in both low‐ and high‐inflation environments (Italy). Our results broadly support models in which inattention is an endogenous outcome that depends on the economic environment. 
    more » « less
  • Citation Formats
  • MLA
  • APA
  • Chicago
  • BibTeX
  • Save / Share this Record
  • Send to Email