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Net Foreign Assets And Imperfect Financial Integration: An Empirical Approach

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  • Jorge Selaive
  • Vicente Tuesta

Abstract

Empirical evidence against both risk-sharing across countries and the uncovered interest rate parity (UIP) condition has been extensively documented. This paper investigates the empirical implications of imperfectly integrated financial markets resulting from these two issues. Under this asset market structure both the risk-sharing condition and the UIP are affected by the Net Foreign Assets Position(NFA) of the country. First, we find strong evidence for OECD countries that the NFA contributes to explaining the lack of risk-sharing across countries. Similarly, in terms of the UIP, the NFA is able to capture a time-varying risk-premium for a small group of countries over short-term horizons.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 252.

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Date of creation: Dec 2003
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Handle: RePEc:chb:bcchwp:252

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Cited by:
  1. Alessandro Girardi & Paolo Paesani, 2005. "Net Foreign Assets in the Euro Area: A Cointegration Analysis," Working Papers 76, University of Rome La Sapienza, Department of Public Economics.
  2. Paul Castillo & Carlos Montoro & Vicente Tuesta, 2006. "An Estimated Stochastic General Equilibrium Model with Partial Dollarization: A Bayesian Approach," Working Papers Central Bank of Chile 381, Central Bank of Chile.
  3. Luis Opazo, 2006. "The Backus-Smith Puzzle: The Role of Expectations," Working Papers Central Bank of Chile 395, Central Bank of Chile.
  4. Rabanal, Pau & Tuesta, Vicente, 2010. "Euro-dollar real exchange rate dynamics in an estimated two-country model: An assessment," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 780-797, April.
  5. Jorge Selaive & Vicente Tuesta, 2004. "Can Fluctuations in the Consumption-Wealth Ratio Help to Predict Exchange Rates?," International Finance 0404014, EconWPA.
  6. You, Kefei & Sarantis, Nicholas, 2012. "Structural breaks and the equilibrium real effective exchange rate of China: A NATREX approach," China Economic Review, Elsevier, vol. 23(4), pages 1146-1163.
  7. Alessandro Girardi & Paolo Paesani, 2008. "The Transfer Problem in the Euro Area," Open Economies Review, Springer, vol. 19(4), pages 517-537, September.

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