Exchange Rate Variability And Asset Trade

Torsten Persson () and Lars Svensson

No 2811, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In discussions about different international monetary arrangements it is often maintained that exchange rate variability has a negative influence on international trade and foreign investment. This paper addresses one specific aspect of this general issue, namely the effect of exchange rate variability on capital flows and international portfolio diversification. More precisely, we examine how different monetary policies -- and among those, policies that aim at stabilizing exchange rates -- determine the risk characteristics of nominal assets, and how these risk characteristics determine international portfolio composition and trade in assets, when international asset markets are incomplete.

Date: 1989-01
Note: ITI IFM
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Published as Journal of Monetary Economics, Vol. 23, No. 3, pp. 485-509, (May 1989).

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