Nominal Revaluation of Cross‐Border Assets, Terms‐of‐Trade Changes, International Portfolio Diversification, and International Risk Sharing

Soyoung Kim

Southern Economic Journal, 2002, vol. 69, issue 2, 327-344

Abstract: Using a simple theoretical model, I suggest that the nominal revaluation of cross‐border assets (the international wealth redistribution through the changes in nominal variables) may work as an international risk‐sharing mechanism at the aggregate level. Then, I empirically examine three risk‐sharing channels: the nominal revaluation of cross‐border assets, the terms‐of‐trade channel suggested by Cole and Obstfeld (1991), and cross‐border security ownership (international portfolio diversification). Empirical results suggest that the nominal revaluation hedges country‐specific consumption risks at the aggregate level but that the other two channels do not. The results have interesting implications on international risk‐sharing and exchange rate regime comparison.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:69:y:2002:i:2:p:327-344

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