TY  - JOUR
AU  - Grinols,Earl L.
AU  - Turnovsky,Stephen J.
TI  - Stochastic Equilibrium and Exchange Rate Determination in a Small Open  Economy with Risk Averse Optimizing Agents
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3651
PY  - 1991
Y2  - March 1991
UR  - http://www.nber.org/papers/w3651
L1  - http://www.nber.org/papers/w3651.pdf
N1  - Author contact info:
Earl Grinols
Department of Economics
University of Illinois
330 Commerce West Building
Champaign, IL  61820
Tel: NA
E-Mail: Earl_Grinols@baylor.edu

Stephen Turnovsky
Department of Economics
301 Savery Hall; Mail Stop DK 30
University of Washington
Seattle, WA   98195
Tel: 206-545-8028
E-Mail: sturn@u.washington.edu
AB  - This paper constructs a stochastic general equilibrium model of a small open economy consisting of risk averse optimizing agents. The stochastic processes describing the rate of monetary growth, government expenditure, private production, and the foreign price level are taken to be exogenous, determining all asset risks and returns, and the equilibrium stochastic processes describing the domestic inflation rate and the exchange rate. The model is used to examine a number of issues. These include: (i) the effects of the means and variances of policy shocks on the equilibrium; (ii) the determinants of the foreign exchange risk premium; (iii) the relationship between net export instability and economic growth.
ER  -