The Globalization of Information and Capital Mobility

43 Pages Posted: 15 Jul 2004 Last revised: 23 Jul 2010

See all articles by William H. Branson

William H. Branson

Princeton University - Woodrow Wilson School of Public and International Affairs; National Bureau of Economic Research (NBER)

Dwight M. Jaffee

University of California, Berkeley - Finance Group; National Bureau of Economic Research (NBER)

Date Written: October 1990

Abstract

This paper provides a framework for analyzing the effects of symmetric and asymmetric changes in information about risk on equilibrium real interest rate spreads across countries. Following the literature on parameter uncertainty, improvements in information are modeled as reductions in estimated variances. The equilibrium interest differential is determined in a two country setting. The effects of changes in information on the differential are shown in cases where (a) all investors have the same information, (b) home investors have superior information about home assets, and (c) all investors experience an improvement in information about one asset. An improvement in information on European assets in "Europe 1992" will raise the interest differential on U.S. assets relative to European as investors shift toward European assets.

Suggested Citation

Branson, William H. and Jaffee, Dwight M., The Globalization of Information and Capital Mobility (October 1990). NBER Working Paper No. w3496. Available at SSRN: https://ssrn.com/abstract=226692

William H. Branson (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

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609-258-4828 (Phone)
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National Bureau of Economic Research (NBER)

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Dwight M. Jaffee

University of California, Berkeley - Finance Group ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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