Real exchange rate decompositions / by Bruno Feunou, Jean-Sébastien Fontaine and Ingomar Krohn.: FB3-6/2022-6E-PDF

"We provide a novel daily decomposition of the real exchange rate that exploits a direct link between bond and foreign exchange (FX) markets. Real exchange rate dynamics can be attributed to changes in the expected future level of the exchange rate; cross-country differentials of expected inflation, yields and bond term premia; and an FX risk premium. Through a variance decomposition exercise, we find that the FX risk premium is the dominant component. Monetary policies and macroeconomic news announcements largely move the real exchange through changes in the FX risk premium"--Abstract.

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Publication information
Department/Agency Bank of Canada, issuing body.
Title Real exchange rate decompositions / by Bruno Feunou, Jean-Sébastien Fontaine and Ingomar Krohn.
Series title Staff discussion paper = Document d'analyse du personnel, 1914-0568 ; 2022-6
Publication type Series - View Master Record
Language [English]
Format Electronic
Electronic document
Note(s) "Last updated: March 22, 2022."
Includes bibliographical references (page 45).
Publishing information Ottawa, Ontario, Canada : Bank of Canada = Banque du Canada, 2022.
©2022
Author / Contributor Feunou, Bruno, author.
Description 1 online resource (ii, 45 pages) : charts.
Catalogue number
  • FB3-6/2022-6E-PDF
Subject terms Foreign exchange rates.
Monetary policy.
Taux de change.
Politique monétaire.
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