Abstract
Output fluctuations in nontraded sectors are a primary country-specific risk factor because nontraded outputs are consumed domestically. While nontraded sector growth risks are mostly non-diversifiable, they can be partially mitigated by international trades in other sectors. The mitigation decreases with the host country's size because a larger economy needs to execute a proportionally larger trade to substitute for losses in its nontraded consumption. In interest rate markets, fluctuations in the growth of industries with higher nontradability feed greater risk to the economy and lower interest rates. In currency markets, these fluctuations generate large currency premia and explain why known funding and investment currencies are associated with economies of both small and large sizes.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
