In this paper we study the exchange rate predictability across a range of investment horizons by return decomposition into forward premium component and carry trade risk premium component, for which we propose a term structure model to capture exchange rate dynamics with a broad set of...

In a no-arbitrage framework, any variable that affects the pricing of the domestic yield curve has the potential to predict foreign exchange risk premiums. The most widely used interest rate predictor is the difference in short rates across countries, known as carry, but the short rate is only...

This paper uses information contained in the cross-country yield curves to test the asset-pricing approach to exchange rate determination, which models the nominal exchange rate as the discounted present value of its expected future fundamentals. Since the term structure of interest rates...

We propose a model in which sticky expectations concerning shortterm interest rates generate joint predictability patterns in bond and currency markets. Using our calibrated model, we quantify the effect of this channel and find that it largely explains why short rates and yield spreads predict...

This paper investigates the predictability of exchange rate changes by extracting the factors from the three-, four-, and five-factor model of the relative Nelson-Siegel class. Our empirical analysis shows that the relative spread factors are important for predicting future exchange rate...

In this paper, we provide adjustments for liquidity and credit risk to the forward Libor rate in order to improve accuracy of the forward rate in forecasting the 3-month Libor rate. In particular, we introduce the adjusted forward curve (AFC) that models the update in the forward curve from one...

This study explores the dynamic relationship between the parameters of the yield curve, macrofinancial variables, and the USD/TRY exchange rate in Türkiye, with a particular focus on the period following the steep 2018 currency depreciation. Using the Nelson-Siegel model, we examine the...

In this paper, we extend the Taylor rule model of exchange rate determination by incorporating the liquidity yield on government bonds and investigate exchange rate predictability. We find that the liquidity yield on government bonds delivers additional predictive power to future exchange rate...

We assess the ability of yield curve factors to predict risk premia in short-term interest rates and exchange rates across a large sample of major advanced economies. We find that the same tick-shaped linear combination of (relative) bond yields predicts risk premia in both short-term interest...

We assess the ability of yield curve factors to predict risk premia in short-term interest rates and exchange rates across a large sample of major advanced economies. We find that the same tick-shaped linear combination of (relative) bond yields predicts risk premia in both short-term interest...