@techreport{NBERw6694,
 title = "Risk and Exchange Rates",
 author = "Maurice Obstfeld and Kenneth Rogoff",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "6694",
 year = "1998",
 month = "August",
 URL = "http://www.nber.org/papers/w6694",
 abstract = {This paper develops an explicitly stochastic  new open economy macroeconomics' model, which can potentially be used to explore the qualitative and quantitative welfare differences between alternative exchange rate regimes.  A crucial feature is that we do not simplify by assuming certainty equivalence for producer price setting behavior.  Our framework also provides a sticky-price alternative to Lucas's (1982) exchage rate risk premium model.  We show that the  level risk premium' in the exchage rate is potentially quite large and may be an important missing fundamental in empirical exchange rate equations. As a byproduct analysis also suggests an intriguing possible explanation of the forward premium puzzle.},
}