TY  - JOUR
AU  - Obstfeld,Maurice
AU  - Rogoff,Kenneth
TI  - Risk and Exchange Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6694
PY  - 1998
Y2  - August 1998
UR  - http://www.nber.org/papers/w6694
L1  - http://www.nber.org/papers/w6694.pdf
N1  - Author contact info:
Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu

Kenneth S. Rogoff
Thomas D Cabot Professor of Public Policy
Economics Department
Harvard University
Littauer Center 216
Cambridge, MA 02138-3001
Tel: 617-495-4022
Fax: 617/495-7730
E-Mail: krogoff@harvard.edu
AB  - 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.
ER  -