This paper proposes a theoretical model that combines a present value model of the exchange rate with a variance-belief formation model to investigate the relationship between macroeconomic uncertainty and the exchange rate. The model emphasizes the risk premium as its core and incorporates...

We provide a theory on currency dynamics, capital flows and conditions for emerging market economy central bank asset purchases to leave room for manoeuvre for conventional monetary policy. Local-currency asset purchases ease financial conditions and boost banks’ foreign borrowing capacity....