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Net Foreign Assets And Imperfect Financial Integration: An Empirical Approach

  • Jorge Selaive
  • Vicente Tuesta

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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