Jiménez-Martín, Juan-Ángel; Cinca, Alfonso Novales - In: Economic Modelling 27 (2010) 5, pp. 1043-1053
This paper shows that state-uncertainty preferences help to explain the observed exchange rate risk premium. In the framework of Lucas (1982) economy, state-uncertainty preferences amount to assuming that a given level of consumption will yield a higher level of utility the lower is the level of...