02042cas a2200241 a 4500 AALejournalIMF006828 230101c9999 xx r poo 0 0eng d 5.00 USD 9781455209552 1018-5941 BD-DhAAL BD-DhAAL Poghosyan, Tigran. Determinants of the Foreign Exchange Risk Premium in Gulf Cooperation Council Countries / Tigran Poghosyan. Washington, D.C. : International Monetary Fund, 2010. 1 online resource (24 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper analyzes macroeconomic determinants of the foreign exchange risk premium in two Gulf Cooperation Council (GCC) countries that peg their currencies to the U.S. dollar: Saudi Arabia and the United Arab Emirates. The analysis is based on the stochastic discount factor methodology, which imposes a no arbitrage condition on the relationship between the foreign exchange risk premium and its macroeconomic determinants. Estimation results suggest that U.S. inflation and consumption growth are important factors driving the risk premium, which is in line with the standard C-CAPM model. In addition, growth in international oil prices influences the risk premium, reflecting the important role played by the hydrocarbon sector in GCC economies. The methodology employed in this paper can be used for forecasting the risk premium on a monthly basis, which has important practical implications for policymakers interested in the timely monitoring of risks in the GCC. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2010/255 Full text available on IMF http://elibrary.imf.org/view/journals/001/2010/255/001.2010.issue-255-en.xml IMF e-Library