NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Exchange Rate Variability And Asset Trade

Torsten Persson, Lars E.O. Svensson

NBER Working Paper No. 2811 (Also Reprint No. r1345)
Issued in 1989
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

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.

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Document Object Identifier (DOI): 10.3386/w2811

Published: Journal of Monetary Economics, Vol. 23, No. 3, pp. 485-509, (May 1989). citation courtesy of

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