京都大学 大学院経済学研究科・経済学部

タイトル：
“Connecting Exchange Rates to Fundamentals Under Indeterminacy”

Abstract:
This paper establishes the connection of exchange rates to macroeconomic fundamentals by estimating a small open-economy model for Canada. The model incorporates an endogenous interest rate spread on foreign bond holdings, so that the resulting modified uncovered interest rate parity condition can exhibit a negative relationship between expected exchange rate depreciation and interest rate differentials, as observed in the data. Because the model is susceptible to equilibrium indeterminacy, we estimate it using Bayesian methods that allow for both determinacy and indeterminacy of equilibrium. The results indicate that preference shocks to the household utility function are the primary source of exchange rate fluctuations, highlighting the connection between exchange rates and fundamentals. We demonstrate that both allowing for indeterminacy and selecting a specific equilibrium representation from the data are crucial for obtaining this result.