DP1569 Trade in Nominal Assets and Net International Capital Flows
| Author(s): | Philippe Bacchetta, Eric van Wincoop |
| Publication Date: | January 1997 |
| Keyword(s): | Exchange Rate Uncertainty, Net Capital Flows, Nominal Risk |
| JEL(s): | F32, F41 |
| Programme Areas: | International Macroeconomics |
| Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=1569 |
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.