Implications for the Adjustment Process of International Asset Risks: Exchange Controls, Intervention and Policy Risk, and Sovereign Risk

Willem H. Buiter

NBER Working Paper No. 516
Issued in July 1980
NBER Program(s):   ITI   IFM

This paper analyzes the implications of international asset risks for the operation of the international adjustment process, with special emphasis on the scope for monetary policy. After a brief review of actual practice in the evaluation of country risk, the paper discusses a number of modifications in the standard theory of efficient international financial markets that are necessitated by the existence of country risk., For macroeconomic policy, the major implications are that domestic and foreign assets become imperfect substitutes and that world demand for domestic assets is likely to be less than perfectly elastic, even in the "small country" case, Even under a fixed exchange rate, a measure of domestic control over domestic interest rates therefore exists.

(388 K)

Published:

• Buiter, W.H. "Implications for the Adjustment Process of International Asset Risk: Exchange Controls, Intervention and Policy Risk, and Sovereign Risk ." Internationalization of Financial Markets & National Economic Policy, ed . by R.G. Hawkinsm R.M. Levich & C.G. Wihlberg, JAI Press, 1983, pp. 69-102 ,
• Journal of Financial Economics, Vol. 13, no. 2 (1984): 187

This paper is available as PDF (388 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX