A Two-Country Discontinuous General Equilibrium Model

Abstract

The aim of this paper is to develop a continuous time general equilibrium model for a two country Lucas type economy. The model assumes that the output in the two countries follows a jump-diffusion stochastic process. We obtain the results concerning the evaluation of financial assets, the determination of the exchange rate, of the interest rate, and of the risk premium in this two-country economy.general equilibrium model, two-country Lucas economy, exchange rate, risk premium, jump-diffusion