We use survey expectations about future monetary policy to decompose excess returns on fed funds futures and overnight index swaps into a term premium and an expectation error component. We find that excess returns are primarily driven by expectation errors, while term premia are economically...

We document that governments whose local currency debt provides them with greater hedging benefits actually borrow more in foreign currency. We introduce two features into a government's debt portfolio choice problem to explain this finding: risk-averse lenders and lack of monetary policy...

Are yields of long-maturity bonds distorted by demand pressure of clientele investors, regulatory effects, or default, flight-to-safety or liquidity premiums? Using data on German nominal bonds between 2005 and 2015, we study the differential pricing and liquidity of short and long maturity...

In recent years, because of the 2008 financial crisis and the evolution of the sovereign debt markets, there has been a significant increase in interest in understanding the factors that determine the risk premium, becoming a key indicator of the financial stability of countries, and a measure...

This paper investigates how different monetary policy designs alter the effect of carry trades on a host small open economy. Capital inflows are expansionary, leading the central bank to raise the interest rate, increasing carry trades' returns, and generating further capital inflows (carry...

This study aims to test the efficiency of the Korean foreign exchange market and examine its determinants through several well-established methodologies based on the forward rate unbiasedness hypothesis and covered interest rate parity. The empirical findings indicate that the currency market...

We examine the causal relationship between US monetary policy shocks, exchange rates and currency excess returns for a sample of eight advanced countries over the period 1980M1 to 2022M11. We find that the dynamics of the US dollar exchange rate is the main driver of currency excess returns. The...

Investors seek to hedge against interest rate risk by taking long or short positions on bonds ofdifferent maturities. We study changes in risk taking behavior in a low interest rateenvironment by estimating a market stochastic discount factor that is non-linear and thereforeconsistent with the...

We develop a dynamic equilibrium asset pricing model with heterogeneous beliefs to study the effects of monetary policy on prices, risk premia, asset price bubbles, and financial stability. Bubble risk premia arise from an interaction between disagreements among investors and dynamic trading...