Macroeconomic sources of foreign exchange risk in new EU members

Abstrakt

We address the issue of foreign exchange risk and its macroeconomic determinants in several new EU members. We derive the observable macroeconomic factors-consumption and inflation-using the stochastic discount factor (SDF) approach.

The joint distribution of excess returns in the foreign exchange market and the factors are modeled using a multivariate GARCH-in-mean specification.

Klíčová slova

• foreign exchange risk
• time-varying risk premium
• Stochastic discount factor
• new EU member countries