Stochastic Equilibrium and Exchange Rate Determination in a Small Open Economy with Risk Averse Optimizing Agents
This paper constructs a stochastic general equilibrium model of a small open economy consisting of risk averse optimizing agents. The stochastic processes describing the rate of monetary growth, government expenditure, private production, and the foreign price level are taken to be exogenous, determining all asset risks and returns, and the equilibrium stochastic processes describing the domestic inflation rate and the exchange rate. The model is used to examine a number of issues. These include: (i) the effects of the means and variances of policy shocks on the equilibrium; (ii) the determinants of the foreign exchange risk premium; (iii) the relationship between net export instability and economic growth.
|Date of creation:||Mar 1991|
|Publication status:||published as Grinols, Earl L. and Stephen J. Turnovsky. "Exchange Rate Determination And Asset Prices In A Stochastic Small Open Economy," Journal of International Economics, 1994, v36(1/2), 75-97.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 15(2), pages 145-161, March.
- R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
- Branson, William H. & Henderson, Dale W., 1985. "The specification and influence of asset markets," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 15, pages 749-805 Elsevier.
- William H. Branson & Dale W. Henderson, 1984. "The Specification and Influence of Asset Markets," NBER Working Papers 1283, National Bureau of Economic Research, Inc.
- Engel, Charles, 1992. "On the foreign exchange risk premium in a general equilibrium model," Journal of International Economics, Elsevier, vol. 32(3-4), pages 305-319, May.
- Charles Engel, 1990. "On the foreign exchange risk premium in a general equilibrium model," Research Working Paper 90-06, Federal Reserve Bank of Kansas City.
- Kenen, Peter B & Voivodas, Constantine S, 1972. "Export Instability and Economic Growth," Kyklos, Wiley Blackwell, vol. 25(4), pages 791-804.
- Turnovsky, Stephen J., 1985. "Domestic and foreign disturbances in an optimizing model of exchange-rate determination," Journal of International Money and Finance, Elsevier, vol. 4(1), pages 151-171, March.
- Stephen J. Turnovsky, 1984. "Domestic and Foreign Disturbances in an Optimizing Model of Exchange- Rate Determination," NBER Working Papers 1407, National Bureau of Economic Research, Inc.
- Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
- R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
- Stockman, Alan C. & Svensson, Lars E. O., 1987. "Capital flows, investment, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 171-201, March.
- Alan C. Stockman & Lars E.O. Svensson, 1985. "Capital Flows, Investment, and Exchange Rates," NBER Working Papers 1598, National Bureau of Economic Research, Inc.
- Giovannini, Alberto & Jorion, Philippe, 1987. "Interest rates and risk premia in the stock market and in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 6(1), pages 107-123, March.
- Frankel, Jeffrey A., 1979. "The diversifiability of exchange risk," Journal of International Economics, Elsevier, vol. 9(3), pages 379-393, August.
- Laidler, David E, 1977. "Expectations and the Behaviour of Prices and Output under Flexible Exchange Rates," Economica, London School of Economics and Political Science, vol. 44(176), pages 327-335, November.
- Brock, Philip L., 1991. "Export instability and the economic performance of developing countries," Journal of Economic Dynamics and Control, Elsevier, vol. 15(1), pages 129-147.
- Floyd, John E, 1978. " The Asset Market Theory of the Exchange Rate: A Comment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(1), pages 100-103. Full references (including those not matched with items on IDEAS)