Exchange Rates and Asset Prices in a Global Demand System

56 Pages Posted: 16 Jun 2020

See all articles by Ralph S. J. Koijen

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Motohiro Yogo

Princeton University - Department of Economics; National Bureau of Economic Research

Multiple version iconThere are 3 versions of this paper

Date Written: June 2020

Abstract

Using international holdings data, we estimate a demand system for financial assets across 36 countries. The demand system provides a unified framework for decomposing variation in exchange rates, long-term yields, and stock prices; interpreting major economic events such as the European sovereign debt crisis; and estimating the convenience yield on US assets. Macro variables and policy variables (i.e., short-term rates, debt quantities, and foreign exchange reserves) account for 55 percent of the variation in exchange rates, 57 percent of long-term yields, and 69 percent of stock prices. The average convenience yield is 2.15 percent on US long-term debt and 1.70 on US equity.

Suggested Citation

Koijen, Ralph S. J. and Yogo, Motohiro, Exchange Rates and Asset Prices in a Global Demand System (June 2020). CEPR Discussion Paper No. DP14874, Available at SSRN: https://ssrn.com/abstract=3628195

Ralph S. J. Koijen (Contact Author)

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Centre for Economic Policy Research (CEPR) ( email )

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Motohiro Yogo

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research

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