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Foreign Exchange Risk Premium Does Fiscal Policy Matter? Evidence From Italian Data

This paper challenges the conventional view that foreign exchange risk premiums are small, not volatile, and unrelated to macroeconomic variables. For the Italian lira (1987-94), unconditional risk premiums—constructed using survey data to measure exchange rate expectations—are found to be sizable (...

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Bibliographic Details
Main Author: Giorgianni, Lorenzo
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1997
Series:IMF Working Papers
Subjects:
Inflation
Government And The Monetary System
Payment Systems
Investment
Regimes
Monetary Economics
Deflation
Fiscal Policy
Currency
Intangible Capital
National Accounts
Money
Price Level
Foreign Exchange
Standards
Saving And Investment
Investments: General
Monetary Systems
Prices
Macroeconomics
Capacity
Capital
Public Finance
Money And Monetary Policy
Survey Methods
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper challenges the conventional view that foreign exchange risk premiums are small, not volatile, and unrelated to macroeconomic variables. For the Italian lira (1987-94), unconditional risk premiums—constructed using survey data to measure exchange rate expectations—are found to be sizable (relative to the dimension of the forward premium), highly volatile (relative to the variability of the forward bias), and predictable. Estimation of structural models of the risk premium suggests that anticipated fiscal contractions in Italy and lower uncertainty about the future path of fiscal policy are associated with a lower risk premium on lira-denominated assets
Physical Description:39 pages
ISBN:9781451845792

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