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Bond Yields and Stock Return Differentials

July 29, 2014

The real exchange rate does a pretty good job at explaining the relative stock return differentials. As a result of the close relationship, we developed arguments linking changes in fiscal and monetary policies to the relative stock market performances. The links between policy changes and the real exchange rate allows us to assess the likely impact of current policies on the real exchange rate and the relative stock market returns across geographic areas.

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