Replication data for: Ambiguity Aversion: Implications for the Uncovered Interest Rate Parity Puzzle
Principal Investigator(s): View help for Principal Investigator(s) Cosmin Ilut
Version: View help for Version V1
Name | File Type | Size | Last Modified |
---|---|---|---|
files_aejm_2011_0075 | 10/12/2019 09:35:PM | ||
LICENSE.txt | text/plain | 14.6 KB | 10/12/2019 05:35:PM |
Project Citation:
Ilut, Cosmin. Replication data for: Ambiguity Aversion: Implications for the Uncovered Interest Rate Parity Puzzle. Nashville, TN: American Economic Association [publisher], 2012. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-12. https://doi.org/10.3886/E114250V1
Project Description
Summary:
View help for Summary
High interest rate currencies tend to appreciate in the future relative to low interest rate currencies instead of depreciating as uncovered interest parity (UIP) predicts. I construct a model of exchange rate determination in which ambiguity-averse agents face a dynamic filtering problem featuring signals of uncertain precision. Solving a max-min problem, agents act upon a worst-case signal precision and systematically underestimate the hidden state that controls payoffs. Thus, on average, agents next periods perceive positive innovations, which generates an upward re-evaluation of the strategy's profitability and implies ex post departures from UIP. The model also produces predictable expectational errors, negative skewness, and time-series momentum for currency speculation payoffs. (JEL D81, F31, G15)
Scope of Project
JEL Classification:
View help for JEL Classification
D81 Criteria for Decision-Making under Risk and Uncertainty
F31 Foreign Exchange
G15 International Financial Markets
D81 Criteria for Decision-Making under Risk and Uncertainty
F31 Foreign Exchange
G15 International Financial Markets
Related Publications
Published Versions
Report a Problem
Found a serious problem with the data, such as disclosure risk or copyrighted content? Let us know.
This material is distributed exactly as it arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.