TY  - JOUR
AU  - Benigno, Gianluca
AU  - Benigno, Pierpaolo
AU  - Nisticò, Salvatore
TI  - Risk, Monetary Policy and the Exchange Rate
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17133
PY  - 2011
Y2  - June 2011
DO  - 10.3386/w17133
UR  - http://www.nber.org/papers/w17133
L1  - http://www.nber.org/papers/w17133.pdf
N1  - Author contact info:
Gianluca Benigno
Department of Economics
London School of Economics
WC2A 2AE
London WC2A 2AE 
United Kingdom
E-Mail: g.benigno@lse.ac.uk

Pierpaolo Benigno
Dipartiment of Economics
University of Bern
3003 Bern
Switzerland
E-Mail: pbenigno@luiss.it

Salvatore Nisticò
Sapienza Università di Roma
Dipartimento di Scienze Sociali ed Economiche
viale Aldo Moro 5
00185 Rome
Italy
Tel: +39.06.49910690
E-Mail: salvatore.nistico@uniroma1.it
M1  - published as Gianluca Benigno, Pierpaolo Benigno, Salvatore Nisticò. "Risk, Monetary Policy and the Exchange Rate," in Daron Acemoglu and Michael Woodford, editors, "NBER Macroeconomics Annual 2011, Volume 26" University of Chicago Press (2012)

M3  - presented at "26th Annual Conference on Macroeconomics", April 8-9, 2011
AB  - In this research, we provide new empirical evidence on the importance of time-varying uncertainty for the exchange rate and the excess return in currency markets. Following an increase in monetary policy uncertainty, the dollar exchange rate appreciates in the medium run, while an increase in the volatility of productivity leads to a dollar depreciation. We propose a general-equilibrium theory of exchange rate determination based on the interaction between monetary policy and time-varying uncertainty aimed at understanding these regularities. In the model, the behaviour of the exchange rate following nominal and real volatility shocks is consistent with the empirical evidence. Furthermore we show that risk factors and interest-rate smoothing are important in accounting for the negative coefficient in the UIP regression.
ER  -