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Nominal Revaluation of Cross-Border Assets, Terms-of-Trade Changes, International Portfolio Diversification, and International Risk Sharing

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  • Soyoung Kim

    () (Department of Economics, University of Illinois at Urbana)

Abstract

Using a simple theoretical model, I suggest that the nominal revaluation of cross-border assets (the international wealth redistribution through the changes in nominal variables) may work as an international risk-sharing mechanism at the aggregate level. Then, I empirically examine three risk-sharing channels: the nominal revaluation of cross-border assets, the terms-of-trade channel suggested by , and cross-border security ownership (international portfolio diversification). Empirical results suggest that the nominal revaluation hedges country-specific consumption risks at the aggregate level but that the other two channels do not. The results have interesting implications on international risk-sharing and exchange rate regime comparison.

Suggested Citation

  • Soyoung Kim, 2002. "Nominal Revaluation of Cross-Border Assets, Terms-of-Trade Changes, International Portfolio Diversification, and International Risk Sharing," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 327-344, October.
  • Handle: RePEc:sej:ancoec:v:69:2:y:2002:p:327-344
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    Cited by:

    1. Ghironi, Fabio & Lee, Jaewoo & Rebucci, Alessandro, 2015. "The valuation channel of external adjustment," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 86-114.
    2. Vahagn Galstyan & Philip Lane, 2010. "The Dynamics of Portfolio Holdings in Emerging Europe," The Institute for International Integration Studies Discussion Paper Series iiisdp346, IIIS.
    3. Lane, Philip R. & Shambaugh, Jay C., 2010. "The long or short of it: Determinants of foreign currency exposure in external balance sheets," Journal of International Economics, Elsevier, vol. 80(1), pages 33-44, January.
    4. Obstfeld, Maurice, 2012. "Financial flows, financial crises, and global imbalances," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 469-480.

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