Engel and West (2004a) provide an explanation to reconcile the random walk behavior of exchange rate and linear present value asset pricing models. In this paper, we study the long horizon property of exchange rate under Engel-West explanation. It is found that the long horizon data can not...

A crucial question centering many recent debates in the international macroeconomics is under which currency the price is sticky. This paper provides a microfoundation to study the firm¡¦s choice of price setting currency in the sticky price model. I first prove that the risk preference is a...