Events

Prof. Shaojun Zhang
Assistant Professor
The Ohio State University

This paper documents that the ratio of residential-to-nonresidential investment is a strong in-sample and out-of-sample predictor for the dollar up to twelve quarters. The predictability is robust to a battery of additional checks and holds for other G10 currencies. An analytical model in which the ratio captures the nontradable investment relative to the tradable investment generates the dollar predictability through predictable future relative price adjustment. Furthermore, because housing booms coincide with higher productivity, higher growth, and lower sector-level volatility, the dollar premium predictability arises. Alternative explanations, including the business and financial cycle, find less empirical support.