What does the yield curve tell us about the exchange rate predictability in Norway?

Abstract

This research paper examines if information of the term structure of interest rates can predict exchange rate movements in Norway. We look at the Norwegian kroner relative to the US dollar from a period of August 2001 until February 2014. We construct two models were we use the Nelson-Siegel factors as proxies for exchange rate risk premium to answer our research question. Our results suggest that the slope factor is the most valuable factor when predicting the exchange rates.