and conditional heteroskedasticity of exchange rates and on the behavior of foreign exchange risk premiums. The model …

boom yields consistently positive excess returns. This excess return compensates for the risk of high negative returns in … countries on risk aversion, and low (high) risk aversion currencies depreciate (appreciate) in times of global turmoil. …

-run and short-run risk. First, we document that our model can match consumption data of several countries. Second, we show … that in a model with recursive preferences our new channel generates a large equity risk premium even if the consumption …