Costa, Carlos Eugênio da; Vasconcelos, Jivago X. - FGV/EPGE Escola Brasileira de Economia e Finanças, … - 2009
Verdelhan (2009) shows that if one is to explain the foreign exchange forward premium behavior using Campbell and Cochrane (1999)'s habit formation model one must specify it in such a way to generate pro-cyclical short term risk free rates. At the calibration procedure, we show that this is only...