Trade in Nominal Assets and Net International Capital Flows

CEPR Discussion Paper Series No. 1569

Posted: 27 Mar 1997

See all articles by Philippe Bacchetta

Philippe Bacchetta

University of Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Eric van Wincoop

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: January 1997

Abstract

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.

JEL Classification: F32, F41

Suggested Citation

Bacchetta, Philippe and van Wincoop, Eric, Trade in Nominal Assets and Net International Capital Flows (January 1997). CEPR Discussion Paper Series No. 1569, Available at SSRN: https://ssrn.com/abstract=4773

Philippe Bacchetta (Contact Author)

University of Lausanne ( email )

Faculty of Business and Economics
Internef 523
1015 Lausanne
Switzerland

HOME PAGE: http://www.hec.unil.ch/pbacchetta/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute

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Eric Van Wincoop

University of Virginia - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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