01958cas a2200277 a 4500 AALejournalIMF005468 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451871425 1018-5941 BD-DhAAL BD-DhAAL Cova, Pietro. New Shocks, Exchange Rates and Equity Prices / Pietro Cova, Alessandro Rebucci, Akito Matsumoto, Massimiliano Pisani. Washington, D.C. : International Monetary Fund, 2008. 1 online resource (36 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We study exchange rate and equity price dynamics, in general equilibrium, in the presence of news shocks about future productivity and monetary policy. We identify a condition under which these asset prices become more volatile without affecting the volatility of the underlying processes-a positive correlation between news and current shocks. This condition also explains why persistent underlying processes generate volatile asset prices. In addition, we show that the correlation between exchange rate and equity returns depends critically on the currency denomination of the equity return and the monetary policy reaction to productivity shocks. The model we set up does well at matching second moments of exchange rate and equity returns for major floating currencies. Mode of access: Internet Matsumoto, Akito. Pisani, Massimiliano. Rebucci, Alessandro. IMF Working Papers; Working Paper ; No. 2008/284 Full text available on IMF http://elibrary.imf.org/view/journals/001/2008/284/001.2008.issue-284-en.xml IMF e-Library