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Trade in nominal assets and net international capital flows

  • Bacchetta, Philippe
  • van Wincoop, Eric

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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