US-Swiss Term Structures and Exchange Rate Dynamics

Posted: 27 Aug 2007 Last revised: 8 Dec 2009

Abstract

In this study, a multi-country nonlinear model is constructed to simultaneously estimate the exchange rate dynamics and the term structure of interest rates in the US and in Switzerland. The model has better empirical performance compared to the earlier well-known affine international models. Risk premiums of bond yields vary between the two countries. The estimated state variables exhibit local characteristics. These conclusions imply the potential advantages of international diversification and demonstrate the Home Bias puzzle. Exchange rate dynamics estimated by the models account for the Forward Premium Anomaly.

Keywords: exchange rates, term structure of interest rates, home bias, forward premium puzzle

JEL Classification: F31, E43, G12, G15

Suggested Citation

Inci, Ahmet Can, US-Swiss Term Structures and Exchange Rate Dynamics. Global Finance Journal, Vol. 18, No. 2, pp. 270-288, 2007, Available at SSRN: https://ssrn.com/abstract=1009516

Ahmet Can Inci (Contact Author)

Bryant University ( email )

1150 Douglas Pike
Smithfield, RI 02917
United States

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