00000nam 2200000za 4500 9.837137 CaOODSP 20221107151051 cr ||||||||||| 170523s2017 oncd ob f000 0 eng d CaOODSP eng eng fre n-cn--- FB3-5/2017-19E-PDF Foroni, Claudia. Assessing the predictive ability of sovereign default risk on exchange rate returns [electronic resource] / by Claudia Foroni, Francesco Ravazzolo and Barbara Sadaba. [Ottawa] : Bank of Canada, 2017. ii, 37 p. : col. charts Bank of Canada staff working paper, 1701-9397 ; 2017-19 "May 2017." Includes bibliographical references (20-22). “Increased sovereign credit risk is often associated with sharp currency movements. Therefore, expectations of the probability of a sovereign default event can convey important information regarding future movements of exchange rates. In this paper, we investigate the possible pass-through of risk in the sovereign debt markets to currency markets by proposing a new risk premium factor for predicting exchange rate returns based on sovereign default risk. We compute it from the term structure at different maturities of sovereign credit default swaps and conduct an out-of-sample forecasting exercise to test whether we can improve upon the benchmark random walk model. Our results show that the inclusion of the default risk factor improves the forecasting accuracy upon the random walk model at short forecasting horizons"--Abstract, p. ii. Includes abstract in French. gccst Capital markets gccst Exchange rates gccst Statistical analysis Ravazzolo, Francesco. Sadaba, Barbara. Bank of Canada. Staff working paper (Bank of Canada) 1701-9397 ; 2017-19 (CaOODSP)9.806221 PDF 2.70 MB https://publications.gc.ca/collections/collection_2017/banque-bank-canada/FB3-5-2017-19-eng.pdf