Macroeconomics Seminar Series. "The Pass-through of Currency Risk Premia"
Published: 10 March 2025
01 May 2025. Professor Paulo Santos Monteiro, University of York
Professor Paulo Santos Monteiro, University of York
"The Pass-through of Currency Risk Premia"
Thursday, 01 May 2025. 15:00-16:30
Room 141A, Adam Smith Business School
Abstract
We propose a novel mechanism to explain the incomplete pass-through of exchange rates to exporter prices and quantities, based on the relationship between exporters’ dynamic pricing strategies and currency risk premia. When domestic currency risk premium increases, the relative value of current foreign currency cash flows rises compared to future ones. Consequently, exporters who set prices in customer markets are inclined to increase markups today, leading to higher prices in response to elevated risk premia. This risk-based explanation provides a new perspective on the exchange rate disconnect puzzle, suggesting that a higher currency risk premium dampens the direct impact of exchange rate changes on export prices. We test this mechanism empirically using firm-product level data from Colombian exporters on prices and quantities.
Bio
I am a Professor of Economics at the University of York in the UK. I have research interests in Macroeconomics, International Economics, Labor Economics, and Political Economy. I am currently working on topics related to fiscal and monetary policy, exchange rate pass-through and trade, labour market business cycles and unemployment insurance, and firm heterogeneity and the allocation of aggregate resources.
For further information, please contact business-seminar-series@glasgow.ac.uk.
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First published: 10 March 2025