Abstract
The foreign exchange risk premium is examined in general equilibrium models with sticky prices. The models assume infinitely-lived agents who maximize utility in a setting of complete markets, but nominal prices set one period in advance. The models of Obstfeld-Rogoff (1998) (prices set in producers' currencies) and Devereux-Engel (1998) (prices set in consumers' currencies) are compared to the Lucas (1984) flexible price model.
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