We study the link between the volatility of exchange rates and interest rate differentials (IRD), motivated by the importance of currency carry trade activities in exchange rate dynamics. We examine this link by means of an extended stochastic volatility model, for which we detail an efficient...

In this paper, we propose an unified econometric strategy to revisit the predictive contentof interest rates for exchange rate returns. The novelty of our approach is to take into account dependencies of higher orders by allowing for a time-varying asymmetry componentin the distribution of...