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State-Uncertainty preferences and the Risk Premium in the Exchange rate market


Jimenez-Martin, Juan-Angel y Novales Cinca, Alfonso (2009) State-Uncertainty preferences and the Risk Premium in the Exchange rate market. [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 17, 2009, ] (No publicado)

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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.

Tipo de documento:Documento de trabajo o Informe técnico
Información Adicional:

JEL Classification: F31, F41, G12, G15.
Corresponding author. Dpto. de Fundamentos de Análisis Económico II, Universidad Complutense, Somosaguas, 28223, Spain. Tel.: +34 91 394 2594. Fax: +34 91 394 2613

Palabras clave:Risk premium, Taste shocks, Fundamental uncertainty.
Materias:Ciencias Sociales > Economía > Econometría
Ciencias Sociales > Economía > Macroeconomía
Título de serie o colección:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Código ID:8711

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