Handbook of Exchange Rates

2.6 Acknowledgments

I thank the editors, Ron Alquist, Yin-Wong Cheung, Jaewoo Lee, David Papell, and the coeditor Ian Marsh for their comments.

¹Most papers rely upon an informal assessment of how impulse response functions from a calibrated or estimated model conform to priors. In addition, the empirical results are often couched in terms of deviations from steady state, which in practice have to be estimated. See Morley (2010) for discussion.

²Certain papers focus on the role of the real interest differential in determining the real exchange rate. See Baxter (1994); Edison and Pauls (1993); Meese and Rogoff (1988), and MacDonald and Nagayasu (2000).

³Risk premia can arise in models without this particular structure. In more microfounded approaches, the risk premia arise from the correlation of relative returns with consumption growth. The implications of this type of approach are discussed in Section 2.4.

⁴As in the case of Equation 2.5, one could recursively substitute out for the expected future exchange rate. This would lead to an expression stating that the current exchange rate is determined as a negative function of current and discounted future expected interest rates, and a positive function of current and discounted future expected stocks of domestic currency bonds, relative to foreign denominated bonds. This expression, likes its monetary counterpart, is not tractable from an empirical standpoint.

⁵So far, we have discussed matters as if the only way in which B and ...