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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

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 Cole and Obstfeld (1991), 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.

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  • Soyoung Kim, 2002. "Nominal Revaluation of Cross‐Border Assets, Terms‐of‐Trade Changes, International Portfolio Diversification, and International Risk Sharing," Southern Economic Journal, John Wiley & Sons, vol. 69(2), pages 327-344, October.
    • Handle: RePEc:wly:soecon:v:69:y:2002:i:2:p:327-344
    DOI: 10.1002/j.2325-8012.2002.tb00495.x
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    1. De Paoli, Bianca & Küçük-Tuger, Hande & Søndergaard, Jens, 2010. "Monetary policy rules and foreign currency positions," LSE Research Online Documents on Economics 121699, London School of Economics and Political Science, LSE Library.
    2. 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.
    3. Vahagn Galstyan & Philip Lane, 2010. "The Dynamics of Portfolio Holdings in Emerging Europe," The Institute for International Integration Studies Discussion Paper Series iiisdp346, IIIS.
    4. 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.

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