; ; ; "ActiveFedora::Aggregation::ListSource" . a , ; "Time-Varying Risk, Interest Rates and Exchange Rates in General Equilibrium"; ; "batchuser@example.com"; "Atkeson, Andrew", "Kehoe, Patrick J.", "Alvarez, Fernando, 1964-"; "Federal Reserve Bank of Minneapolis"; "Pricing kernel", "Forward premium anomaly", "Asset pricing-puzzle", "Segmented markets", "Time-varying conditional variances", "Fama puzzle"; "F31 - Foreign Exchange", "G12 - Asset Pricing; Trading Volume; Bond Interest Rates", "G15 - International Financial Markets", "F30 - International Finance: General", "E43 - Interest Rates: Determination, Term Structure, and Effects", "F41 - Open Economy Macroeconomics"; "Time-varying risk is the primary force driving nominal interest rate differentials on currency-denominated bonds. This finding is an immediate implication of the fact that exchange rates are roughly random walks. We show that a general equilibrium monetary model with an endogenous source of risk variation—a variable degree of asset market segmentation—can produce key features of actual interest rates and exchange rates. The endogenous segmentation arises from a fixed cost for agents to exchange money for assets. As inflation varies, the benefit of asset market participation varies, and that changes the fraction of agents participating. These effects lead the risk premium to vary systematically with the level of inflation. Our model produces variation in the risk premium even though the fundamental shocks have constant conditional variances. "^^; "2005-10"; "2019-06-25T14:00:00.566581014+00:00"^^; "https://doi.org/10.21034/wp.627"; ; "https://creativecommons.org/licenses/by-nc/4.0/"; "2020-11-18T20:27:29.688252116+00:00"^^; "https://creativecommons.org/licenses/by-nc/4.0/"; "Research Paper"; "393", "20", "39"; "Working paper (Federal Reserve Bank of Minneapolis. Research Department)"; "627"; "Pricing kernel", "Fama puzzle", "Asset pricing-puzzle", "Time-varying conditional variances", "Forward premium anomaly", "Segmented markets"; ; ; ; ; "Federal Reserve Bank of Minneapolis. Research Department"; """Published in _The Review of Economic Studies_ (Vol. 76, Iss. 3, July 2009, pp. 851–878), https://doi.org/10.1111/j.1467-937X.2009.00537.x. An updated version of this Working Paper was published as [Staff Report 371](https://doi.org/10.21034/sr.371)."""^^; ; "Publication" . ; .