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Title: Trade in Nominal Assets and Net International Capital Flows

Author(s): Philippe Bacchetta and Eric van Wincoop

Publication Date: January 1997

Keyword(s): Exchange Rate Uncertainty, Net Capital Flows and Nominal Risk

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Bacchetta, P and van Wincoop, E. 1997. 'Trade in Nominal Assets and Net International Capital Flows'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1569