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International Asset Pricing with Risk-Sensitive Rare Events

Author

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  • Mariano M. Croce

    (University of North Carolina at Chapel Hill)

  • Riccardo Colacito

    (University of North Carolina at Chapel Hill)

Abstract

We propose a frictionless general equilibrium model in which two international consumers with recursive preferences trade two consumption goods and a complete set of date and state contingent securities. Consumption home bias and concern for the temporal distribution of risk generate rich dynamics for international prices and quantities. In our model, exchange rate movements are as volatile as they are in the data. Furthermore, both the volatility of the exchange rate movements and risk-premia are endogenously time varying and history dependent.

Suggested Citation

  • Mariano M. Croce & Riccardo Colacito, 2010. "International Asset Pricing with Risk-Sensitive Rare Events," 2010 Meeting Papers 176, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:176
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    References listed on IDEAS

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