FOREX risk premia and policy uncertainty: A recursive utility analysis
Publication date
2004Keyword
Foreign exchange risk premiumStochastic general equilibrium models
Policy uncertainty
Recursive utility
Peer-Reviewed
YesOpen Access status
closedAccess
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We compare actual and calibrated values for the foreign exchange risk premium based on the definition in [J. Int. Econ. 32 (1992) 305]. Calibrated values are found from within a dynamic stochastic general equilibrium model of a small open economy consisting of risk averse optimizing agents with unconventional preferences. We find that the equilibrium foreign exchange risk premium is a function of exogenous shocks in the model and is sensitive to assumed attitudes towards risk. Furthermore, various forms of policy uncertainty improve the capacity of the model to generate values closer to those found in the data.Version
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Kenc,T and Evans L (2004) FOREX risk premia and policy uncertainty: A recursive utility analysis. Journal of International Financial Markets Institutions and Money. 14(1): 1-24.Link to Version of Record
https://doi.org/10.1016/S1042-4431(03)00041-6Type
Articleae974a485f413a2113503eed53cd6c53
https://doi.org/10.1016/S1042-4431(03)00041-6