Exposures of expected future depreciation rates to the current interest rate differential violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon. Conversely, forward, or risk-adjusted expected depreciation rates are monotonic. We explain the two patterns...

This paper examines the dynamic properties of Asia-Pacific local currency sovereign bond yields and risk premiums. We focus, in particular, on the properties and interactions of components of bond risk premiums that are due to credit spreads and exchange rates. We find that local variables are...

The depreciation rate is often computed as the ratio of foreign and domestic pricing kernels. Using bond prices alone to estimate these kernels leads to currency puzzles: the inability of models to match violations of uncovered interest parity and the volatility of exchange rates. One cannot use...