Since the Fall of 2008, out-of-the money puts on high interest rate currencies have become significantly more expensive than out-of-the-money calls, suggesting a large crash risk of those currencies. To evaluate crash risk precisely, we propose a parsimonious structural model that includes both...

This paper challenges the conventional view that foreign exchange risk premiums are small, not volatile, and unrelated to macroeconomic variables. For the Italian lira (1987-1994), unconditional risk premiums--constructed using survey data to measure exchange rate expectations--are found to be...

This paper identifies a unique dimension of currency carry trade related to the intensity of technology spillover across countries. In the data, technology diffusion is measured by the R\&D ingredient embodied in manufactured goods imports. Empirical evidence shows that the difference in the...