English, Article, Journal or magazine article edition: Net Foreing Assets and Imperfect Pass-through: The Consumption-Real Exchange Rate Anomaly Vicente Tuesta; Jorge Selaive

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Bookmark: http://trove.nla.gov.au/version/57088
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Net Foreing Assets and Imperfect Pass-through: The Consumption-Real Exchange Rate Anomaly
Author
  • Vicente Tuesta
  • Jorge Selaive
Physical Description
  • preprint
Notes
  • An unresolved issue in international macroeconomics is the apparent lack of risk-sharing across countries, which contradicts the prediction of models based on the assumption of complete markets. We asses the importance of international financial frictions in this issue by constructing an incomplete market model with stationary net foreign asset (NFA) and imperfect pass-through. In this paper, there is a cost of bond holding that allows us to incorporate the dynamics of the NFA position into the risk-sharing condition. On the theoretical grounds, our results suggest that the dynamics of the NFA position may account for the lack of risk-sharing across countries. In addition, the imperfect pass-through mechanism, by closing the current account channel, does not help to explain this feature of the data. On empirical grounds, we test the risk-sharing condition derived in the paper, and we find that growth factors of consumption and real exchange rates behave in a manner that may be consistent with a significant role for the net foreign asset position.
  • Net Foreing Assets, Incomplete Markets, Uncovered Interest Rate Parity, Imperfect Pass-through
  • RePEc:red:sed004:203
Language
  • English
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