Lustig and Verdelhan (2007) argue that the excess returns to borrowing US dollars and lending in foreign currency "compensate US investors for taking on more US consumption growth risk," yet these excess returns are all approximately uncorrelated with the consumption risk factors they study....

"When linear asset pricing models are estimated using excess return data, a normalization of the model must be selected. Several normalizations are equivalent when the model is correctly specified, but the identification conditions differ across normalizations. In practice, some or all of these...