Net foreign assets and imperfect pass-through: the consumption real exchange rate anomaly

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 assess the importance of financial frictions in this issue by constructing an incomplete market model with stationary net foreign assets (NFA) and imperfect pass-through (IPT). In this paper, there is a cost of bond holdings that allows us to incorporate the dynamics of NFA into the risk-sharing condition. On theoretical grounds, our results suggest that the dynamics of NFA may account for the lack of risk-sharing across countries. In addition, the IPT 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.Risk ; International finance

Can Fluctuations in the Consumption-Wealth Ratio Help to Predict Exchange Rates?

It is well documented that macroeconomic fundamentals are little help in predicting changes in the nominal exchange rates compared to the predictions made by a simple random walk. Letta and Ludvigson (2001) find that fluctuations in the common long-term trend in consumption, asset wealth, and labor income (herby, consumption-wealth ratio)is a strong predictor of the excess returns. In this paper, we study the role of the consumption-wealth ratio in predicting the change in the nominal exchange rate of a large set of countries. We find evidence that fluctuations in the consumption-wealth ratio help to predict in-sample all the currencies. in terms of out-of-sample forecasts, our results suggest that the consumption-wealth ratio may play a significant role predicting the Canadian dollar at all horizons and at short-intermediate horizons for some currencies.Exchange Rates, Consumption-Wealth Ratio, PRedictability

The Consumption-Real Exchange Rate Anomaly: Non-Traded Goods, Incomplete Markets and Distribution Services

The real exchange rate is volatile and tends to move in opposite direction with respect to relative consumption across countries. Chari, Kehoe and McGrattan (CKM, 2002) refer to the inability of models to replicate the last stylized fact as the consumption-real exchange rate anomaly. In this paper we show that an international RBC model similar to the one proposed by CKM but extended by considering nontraded goods and an incomplete asset market structure can solve this anomaly. Non tradable goods amplify wealth effects that arise from the incomplete assets market structure generating a negative comovement between the real exchange rate and relative consumption. The model performs reasonable well with other business cycle moments and, by adding distribution services in terms of nontraded goods, it generates a real exchange rate as volatile as in the data. Results are robust to the addition of nominal price rigidities and -in contrast with CKM- there is no need of monetary shocks to account for the real exchange rate dynamics.

Net Foreign Assets And Imperfect Financial Integration: An Empirical Approach

Empirical evidence against both risk-sharing across countries and the uncovered interest rate parity (UIP) condition has been extensively documented. This paper investigates the empirical implications of imperfectly integrated financial markets resulting from these two issues. Under this asset market structure both the risk-sharing condition and the UIP are affected by the Net Foreign Assets Position(NFA) of the country. First, we find strong evidence for OECD countries that the NFA contributes to explaining the lack of risk-sharing across countries. Similarly, in terms of the UIP, the NFA is able to capture a time-varying risk-premium for a small group of countries over short-term horizons.

High-energy constraints from low-energy neutrino non-standard interactions

Many scenarios of new physics predict the existence of neutrino Non-Standard Interactions, new vector contact interactions between neutrinos and first generation fermions beyond the Standard Model. We obtain model-independent constraints on the Standard Model Effective Field Theory at high energies from bounds on neutrino non-standard interactions derived at low energies. Our analysis explores a large set of new physics scenarios and includes full one-loop running effects below and above the electroweak scale. Our results show that neutrino non-standard interactions already push the scale of new physics beyond the TeV. We also conclude that bounds derived by other experimental probes, in particular by low-energy precision measurements and by charged lepton flavor violation searches, are generally more stringent. Our study constitutes a first step towards the systematization of phenomenological analyses to evaluate the impact of neutrino Non-Standard Interactions for new physics scenarios at high energies.Comment: 25 pages, 7 figures, 2 tables. Merry Christmas and happy new year

Separability conditions from the Landau-Pollak uncertainty relation

We obtain a collection of necessary (sufficient) conditions for a bipartite system of qubits to be separable (entangled), which are based on the Landau-Pollak formulation of the uncertainty principle. These conditions are tested, and compared with previously stated criteria, by applying them to states whose separability limits are already known. Our results are also extended to multipartite and higher-dimensional systems.Comment: 20 page

Gobernanza urbana en Galicia: cicatrices en la ciudad difusa

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