This paper presents a novel approach to measuring the exchange rate uncertainty to explain the Covered Interest Rate Parity (CIP) Deviations. It employs an endogenous factor clustering model that captures daily fluctuations in exchange rates, unveiling pervasive shocks influencing market volatility, even amid financial crises. This model determines distinct patterns, including a break coinciding with the Great Financial Crisis, that shape the variation of identifiable currency clusters. I applied this method to the CIP deviations of LIBOR and Government rates across major currencies, demonstrating the economically significant effects of uncertainty for both. These effects remain robust, even considering different model specifications that account for interest rate dynamics and fluctuations in the broader dollar exchange. 

Presented in Society for Financial Econometrics (SoFiE) Annual Conference 2024 - Rio de Janeiro (Expected), European Economic Association Annual Conference - Barcelona 2023, 30th Finance Forum - Malaga, Spain, 9th Annual Conference of the International Association for Applied Econometrics (IAAE),  Ph.D. Student Conference of International Macroeconomics (Paris), University of Minnesota (Finance), the 29th Global Finance Conference - Braga, 38th Eurasia Business and Economics Society (EBES) - Warsaw, 23rd RSEP International Economics, Finance, and Business Conference - Rome, Rutgers University, Copenhagen Business School

In this paper, I examine the effects of exchange rate and macroeconomic uncertainty shocks on the United States' net foreign asset position. I use a  Structural Vector Autoregressive (SVAR) model that incorporates a combination of external variable, narrative, and shock-dependent restrictions that account for the endogeneity of the uncertainties and their respective relationship with the net portfolio flows. The results reveal that exchange rate shocks and macroeconomic uncertainty contribute to reducing the deficit of the United States' net foreign asset position. Notably, macroeconomic has a greater lasting impact than the exchange rate. It is important to note that reducing the deficit in the short run leads to increased macroeconomic fluctuations, while it has the opposite effect in the long run. Furthermore, my study demonstrates that shocks in macroeconomic uncertainty are associated with higher exchange rate fluctuations. Conversely, higher exchange rate fluctuations have a contrary effect, reducing macroeconomics. These findings align with the existing literature on convenience yields and dominant currency, as high fluctuations affect the core economy by influencing foreign demand for assets and the stability of the world's terms of trade.

(Very Outdated Version - See Slides for the latest results). (Slides) 

Presented at Universidad del Valle, V Congreso de Economía Colombiana (Macroeconomics Section) - Universidad de los Andes, Winner as Best Poster in the "V Congreso de Economía Colombiana" At the Universidad de los Andes.