@techreport{NBERw18057,
 title = "Country Size, Currency Unions, and International Asset Returns",
 author = "Tarek Alexander Hassan",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "18057",
 year = "2012",
 month = "May",
 URL = "http://www.nber.org/papers/w18057",
 abstract = {Differences in real interest rates across developed economies are puzzlingly large and persistent. I propose a simple explanation: Bonds issued in the currencies of larger economies are expensive because they insure against shocks that affect a larger fraction of the world economy. I show that differences in the size of economies indeed explain a large fraction of the cross-sectional variation in currency returns. The data also support a number of additional implications of the model: The introduction of a currency union lowers interest rates in participating countries and stocks in the non-traded sector of larger economies pay lower expected returns.},
}