Trade in Nominal Assets and Net International Capital Flows

Philippe Bacchetta and Eric van Wincoop

No 1569, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Exchange Rate Uncertainty; Net Capital Flows; Nominal Risk (search for similar items in EconPapers)
JEL-codes: F32 F41 (search for similar items in EconPapers)
Date: 1997-01
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Citations: View citations in EconPapers (7)

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Journal Article: Trade in nominal assets and net international capital flows (2000)
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