I show that long-run risk - highly persistent variation in expected consumption growth - arises endogenously in a production economy with nominal frictions. The `long-run' part comes from price stickiness. Nominal frictions in the model generate a consumption growth process that shows low...

A basic tenet of lognormal asset pricing models is that a risky currency is associated with low pricing kernel volatility. Empirical evidence indicates that a risky currency is associated with a relatively high interest rate. Taken together, these two statements associate high-interest-rate...