Template-type: ReDIF-Paper 1.0
Author-Name: Juan-Ángel Jiménez-Martín
Author-Email: juanangel@ccee.ucm.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/jajm
Author-Person: pji27 
Author-Workplace-Name: Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales 
	(Faculty of Economics and Business), Universidad Complutense de Madrid
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Author-Workplace-Homepage: https://www.ucm.es/icae
Author-Name: Alfonso Novales Cinca
Author-Email: anovales@ccee.ucm.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/novales-cinca,-alfonso
Author-Workplace-Name: Dpto. de Fundamentos de Análisis Económico II, Universidad Complutense
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Author-Workplace-Homepage: https://www.ucm.es/icae
Title: State-Uncertainty preferences and the Risk Premium in the Exchange rate market
Abstract: This paper introduces state-uncertainty preferences into the Lucas (1982) economy,
	showing that this type of preferences helps to explain the exchange rate risk premium. Under these
	preferences we can distinguish between two factors driving the exchange rate risk premium:
	“macroeconomic risk” and “the risk associated with variation in the private agents’ perception on
	the level of uncertainty”. 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 uncertainty perceived by
	consumers. Furthermore, empirical evidence from three main European economies in the
	transition period to the euro provides empirical support for the model
Classification-JEL: F31, F41, G12, G15.
Keywords: Risk premium, Taste shocks, Fundamental uncertainty.
Length: 25 pages 
Creation-Date: 2009
Number: 2009-17
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0917.txt
File-URL: https://eprints.ucm.es/id/eprint/8711/1/0917.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0917