The Geography of Exchange Rate Disconnect
48 Pages Posted: 18 Feb 2021
Date Written: August 1, 2020
This paper proposes a measure of exchange rate disconnect. Working in a two-currency international economy, our theory implies that the disconnect is the ratio of two martingales. We
analyze empirically our measure of disconnect using 406 pairs of economies to reveal a geography of disconnect. Linking theory to returns of international bonds and equities, we examine cross-sectional disparities in disconnect with respect to multidimensional attributes of the global economy.
Keywords: Exchange rate disconnect, geography, international bond, equity, and currency markets
JEL Classification: G12, G15, E44, F31, F36
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