State-Uncertainty preferences and the Risk Premium in the Exchange rate market
This paper introduces state-uncertainty preferences into the Lucas (1982) economy,showing that this type of preferences helps to explain the exchange rate risk premium. Under these preferences we can distinguish between two factors driving the exchange rate risk premium: “macroeconomic risk” and “th...
| Autores: | , |
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| Tipo de recurso: | informe técnico |
| Fecha de publicación: | 2009 |
| País: | España |
| Institución: | Universidad Complutense de Madrid (UCM) |
| Repositorio: | Docta Complutense |
| Idioma: | inglés |
| OAI Identifier: | oai:docta.ucm.es:20.500.14352/49264 |
| Acceso en línea: | https://hdl.handle.net/20.500.14352/49264 |
| Access Level: | acceso abierto |
| Palabra clave: | F31 F41 G12 G15 Risk premium Taste shocks Fundamental uncertainty. Econometría (Economía) Macroeconomía 5302 Econometría 5307.14 Teoría Macroeconómica |
| Sumario: | This paper introduces state-uncertainty preferences into the Lucas (1982) economy,showing that this type of preferences helps to explain the exchange rate risk premium. Under these preferences we can distinguish between two factors driving the exchange rate risk premium: “macroeconomic risk” and “the risk associated with variation in the private agents’ perception on the level of uncertainty”. State-uncertainty preferences amount to assuming that a given level of consumption will yield a higher level of utility the lower is the level of uncertainty perceived by consumers. Furthermore, empirical evidence from three main European economies in the transition period to the euro provides empirical support for the model. |
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