International Asset Pricing with Risk-Sensitive Rare Events

Mariano M. Croce and Riccardo Colacito ()
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Mariano M. Croce: University of North Carolina at Chapel Hill

No 176, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: We propose a frictionless general equilibrium model in which two international consumers with recursive preferences trade two consumption goods and a complete set of date and state contingent securities. Consumption home bias and concern for the temporal distribution of risk generate rich dynamics for international prices and quantities. In our model, exchange rate movements are as volatile as they are in the data. Furthermore, both the volatility of the exchange rate movements and risk-premia are endogenously time varying and history dependent.

Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed010:176

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