Linnemann, Ludger ORCID: 0000-0001-8210-0002 and Schabert, Andreas
ORCID: 0000-0002-4924-9937
(2015).
Liquidity premia and interest rate parity.
Journal of International Economics, 97 (1).
178 - 193.
AMSTERDAM:
ELSEVIER SCIENCE BV.
ISSN 1873-0353 ; 0022-1996
Abstract
Due to the US dollar's dominant role for international trade and finance, risk-free assets denominated in US currency not only offer a pecuniary return, but also provide transaction services, both nationally and internationally. Accordingly, the responses of bilateral US dollar exchange rates to interest rate shocks should differ substantially with respect to the (US or foreign) origin of the shock We demonstrate this empirically and apply a model of liquidity premia on US treasuries originating from monetary policy implementation. The liquidity premium leads to a modification of uncovered interest rate parity (UIP), which enables the model to explain an appreciation of the dollar subsequent to an increase in US interest rates if foreign interest rates follow the US monetary policy rate. (C) 2015 Elsevier B.V. All rights reserved.
Item Type: | Journal Article | ||||||||||||
Creators: |
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URN: | urn:nbn:de:hbz:38-393954 | ||||||||||||
DOI: | 10.1016/j.jinteco.2015.03.006 | ||||||||||||
Journal or Publication Title: | Journal of International Economics | ||||||||||||
Volume: | 97 | ||||||||||||
Number: | 1 | ||||||||||||
Page Range: | 178 - 193 | ||||||||||||
Date: | 2015 | ||||||||||||
Publisher: | ELSEVIER SCIENCE BV | ||||||||||||
Place of Publication: | AMSTERDAM | ||||||||||||
ISSN: | 1873-0353 ; 0022-1996 | ||||||||||||
Language: | English | ||||||||||||
Faculty: | Central Institutions / Interdisciplinary Research Centers | ||||||||||||
Divisions: | Weitere Institute, Arbeits- und Forschungsgruppen > Center for Macroeconomic Research (CMR) | ||||||||||||
Subjects: | Economics | ||||||||||||
Uncontrolled Keywords: |
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Refereed: | Yes | ||||||||||||
URI: | http://kups.ub.uni-koeln.de/id/eprint/39395 |
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