publication . Report . Preprint . 2013

Hot Tip: Nominal Exchange Rates and Inflation Indexed Bond Yields

Richard H. Clarida;
Open Access
  • Published: 01 Jan 2013
  • Publisher: National Bureau of Economic Research
This paper derives a structural relationship between the nominal exchange rate, national price levels, and observed yields on long maturity inflation - indexed bonds. This relationship can be interpreted as defining the fair value of the exchange rate that will prevail in any model or real world economy in which inflation indexed bonds are traded. An advantage of our derivation is that it does not require restrictive assumptions on financial market equilibrium to be operational. We take our theory to a dataset spanning the period January 2001 - February 2011 and study a daily , real time decompositions of pound, euro, and yen exchange rates into their fair value...
free text keywords: jel:F3, jel:F31

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