nep-ifn New Economics Papers
on International Finance
Issue of
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The euro and the geography of international debt flows By Hale, Galina; Obstfeld, Maurice
  2. Asset Trading and Valuation with Uncertain Exposure By Hatchondo, Juan Carlos; Krusell, Per; Schneider, Martin

  1. By: Hale, Galina (Federal Reserve Bank of San Francisco); Obstfeld, Maurice (University of California Berkeley,)
    Abstract: Greater financial integration between core and peripheral EMU members had an effect on both sets of countries. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. The result has been asset-price bubbles and collapses in some of the peripheral countries, area-wide banking crisis, and sovereign debt problems. We analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro’s introduction, Core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery.
    Keywords: international debt; EMU; international banking; global imbalances; euro crisis
    JEL: F32 F34 F36
    Date: 2014–04–14
  2. By: Hatchondo, Juan Carlos (Federal Reserve Bank of Richmond); Krusell, Per (IIES); Schneider, Martin (Stanford University)
    Abstract: This paper considers an asset market where investors have private information not only about asset payoffs, but also about their own exposure to an aggregate risk factor. In equilibrium, rational investors disagree about asset payoffs: Those with higher exposure to the risk factor are (endogenously) more optimistic about claims on the risk factor. Thus, information asymmetry limits risk sharing and trading volumes. Moreover, uncertainty about exposure amplifies the effect of aggregate exposure on asset prices, and can thereby help explain the excess volatility of prices and the predictability of excess returns.
    Keywords: Asset trading; Asset valuation
    Date: 2014–04–02

This nep-ifn issue is © by Vimal Balasubramaniam. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.