Publications [#285709] of Cosmin L. Ilut

Papers Submitted

1. Ilut, C, Ambiguity aversion: Implications for the uncovered interest rate parity puzzle (July, 2012), pp. 33-65, American Economic Association [doi]
   (last updated on 2026/01/13)

   Abstract:
   High interest rate currencies tend to appreciate in the future relative to low interest rate currencies instead of depreciating as uncovered interest parity (UIP) predicts. I construct a model of exchange rate determination in which ambiguity-averse agents face a dynamic filtering problem featuring signals of uncertain precision. Solving a max-min problem, agents act upon a worst-case signal precision and systematically underestimate the hidden state that controls payoffs. Thus, on average, agents next periods perceive positive innovations, which generates an upward re-evaluation of the strategy's profitability and implies ex post departures from UIP. The model also produces predictable expectational errors, negative skewness, and time-series momentum for currency speculation payoffs.