Alvarez, Fernando; Atkeson, Andrew; Kehoe, Patrick J. - In: Review of Economic Studies 76 (2009) 3, pp. 851-878
Under mild assumptions, the data indicate that fluctuations in nominal interest rate differentials across currencies are primarily fluctuations in time-varying risk. This finding is an immediate implication of the fact that exchange rates are roughly random walks. If most fluctuations in...