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Trade in nominal assets and net international capital flows

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  • Bacchetta, Philippe
  • van Wincoop, Eric

Abstract

Nominal assets play a major role in international financial markets, while trade in indexed bonds is not empirically relevant. As a result, agents are generally exposed to both price and exchange rate uncertainty. Nonetheless, previous research on net capital flows has assumed the presence of a risk-free vehicle to intertemporal asset trade. In this paper, we present a general equilibrium intertemporal model with trade limited to nominal bonds and equity. We find that the absence of a risk-free bond generally dampens net capital flows, thus making economies effectively more closed.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 19 (2000)
Issue (Month): 1 (February)
Pages: 55-72

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Handle: RePEc:eee:jimfin:v:19:y:2000:i:1:p:55-72

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Web page: http://www.elsevier.com/locate/inca/30443

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Citations

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Cited by:
  1. Devereux, Michael B. & Sutherland, Alan, 2008. "Financial globalization and monetary policy," Discussion Paper Series 1: Economic Studies 2008,20, Deutsche Bundesbank, Research Centre.
  2. Martin D. D. Evans (Georgetown University) and Viktoria Hnatkovska (Georgetown University), 2005. "International Capital Flows, Returns and World Financial Integration," Working Papers gueconwpa~05-05-17, Georgetown University, Department of Economics.
  3. Sebastian Edwards, 2002. "Does the Current Account Matter?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 21-76 National Bureau of Economic Research, Inc.
  4. VEronica Rappoport & Natalia Ramondo, 2009. "The Role of Multinational Production in a Risky Environment," 2009 Meeting Papers 1106, Society for Economic Dynamics.
  5. Freund, Caroline, 2005. "Current account adjustment in industrial countries," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1278-1298, December.
  6. Hnatkovska, Viktoria, 2010. "Home bias and high turnover: Dynamic portfolio choice with incomplete markets," Journal of International Economics, Elsevier, vol. 80(1), pages 113-128, January.
  7. Philippe Bacchetta & Eric van Wincoop, 1998. "Does exchange rate stability increase trade and capital flows?," Research Paper 9818, Federal Reserve Bank of New York.
  8. Lane, Philip R., 2000. "International investment positions: a cross-sectional analysis," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 513-534, August.

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