| Description |
1 online resource (24 pages) : color illustrations |
| Series |
IMF working paper ; WP/10/255 |
|
IMF working paper ; WP/10/255.
|
| Contents |
Cover Page; Title Page; Copyright Page; Contents; Introduction; 1. Theoretical Background; A. Review of Methodological Approaches for Modeling Foreign Exchange Risk; B. The Stochastic Discount Factor Approach; II. Econometric Methodology and Data; A. Multivariate GARCH-in-Mean Model; B. Data; Figure 1: Foreign Exchange Forward Differential in Saudi Arabia; Figure 2: Foreign Exchange Forward Differential in the United Arab Emirates; Table 1: Descriptive Statistics; Figure 3: U.S. CPI Inflation; Figure 4: U.S. Consumption; Figure 4: Nominal Oil Prices; III. Estimation Results |
|
A. Empirical FindingsFigure 6: Actual and Estimated Foreign Exchange Risk Premium in Saudi Arabia; Figure 7: Actual and Estimated Foreign Exchange Risk Premium in the United Arab Emirates; Table 2: Estimation Results: Saudi Arabia; Table 3: Estimation Results: The United Arab Emirates; B. Determinants of FX Risk Premium; C. Diagnostics and Model Specification Tests; Table 4: Specification Tests; IV. Conclusions; References; Footnotes |
| Summary |
This paper analyzes macroeconomic determinants of the foreign exchange risk premium in two Gulf Cooperation Council (GCC) countries that peg their currencies to the U.S. dollar: Saudi Arabia and the United Arab Emirates. The analysis is based on the stochastic discount factor methodology, which imposes a no arbitrage condition on the relationship between the foreign exchange risk premium and its macroeconomic determinants. Estimation results suggest that U.S. inflation and consumption growth are important factors driving the risk premium, which is in line with the standard C-CAPM model. In addition, growth in international oil prices influences the risk premium, reflecting the important role played by the hydrocarbon sector in GCC economies. The methodology employed in this paper can be used for forecasting the risk premium on a monthly basis, which has important practical implications for policymakers interested in the timely monitoring of risks in the GCC |
| Bibliography |
Includes bibliographical references |
| Notes |
Print version record |
| Subject |
Foreign exchange -- Persian Gulf Region
|
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Foreign exchange administration -- Persian Gulf Region
|
|
Foreign exchange
|
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Foreign exchange administration
|
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Persian Gulf Region
|
| Form |
Electronic book
|
| Author |
International Monetary Fund. Middle East and Central Asia Department, issuing body.
|
| ISBN |
1283568276 |
|
9781283568272 |
|
9781455276905 |
|
1455276901 |
|
9781455209552 |
|
1455209554 |
|
