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| Author | : Raman Uppal |
| Publisher | : |
| Total Pages | : 36 |
| Release | : 1991 |
| Genre | : Investments, Foreign |
| ISBN | : |
| Author | : Alan J. Auerbach |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 1980 |
| Genre | : |
| ISBN | : |
| Author | : Michael B. Devereux |
| Publisher | : International Monetary Fund |
| Total Pages | : 34 |
| Release | : 2007-12 |
| Genre | : Business & Economics |
| ISBN | : |
This paper presents a general approximation method for characterizing time-varying equilibrium portfolios in a two-country dynamic general equilibrium model. the method can be easily adapted to most dynamic general equilibrium models, it applies to environments in which markets are complete or incomplete, and it can be used for models of any dimension. Moreover, the approximation provides simple, easily interpretable closed form solutions for the dynamics of equilibrium portfolios.
| Author | : Mr.Charles Engel |
| Publisher | : INTERNATIONAL MONETARY FUND |
| Total Pages | : 0 |
| Release | : 2005-08-01 |
| Genre | : Business & Economics |
| ISBN | : 9781451861846 |
This paper develops a two-country monetary DSGE (dynamic stochastic general equilibrium) model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some goods prices are set without full information of the state. Home and foreign portfolios are not identical in equilibrium. In response to technology shocks, sticky prices generate a negative correlation between labor income and the profits of domestic firms, biasing portfolios in favor of home equities. In contrast, under flexible prices, labor income and the profits of the domestic firms are positively correlated.
| Author | : Urban J. Jermann |
| Publisher | : |
| Total Pages | : 40 |
| Release | : 1998 |
| Genre | : Consumption (Economics) |
| ISBN | : |
When marginal utility of consumption depends on leisure, investors will take this into account when allocating their wealth among different assets. This paper presents a multi-country general equilibrium model driven by productivity shocks, where labor-leisure and consumption are chosen endogenously. We use this framework to study the effect of leisure for optimal international diversification. We find that in the symmetric case the model's ability to help explain home-bias depends crucially on the level of substitutability between consumption and leisure.
| Author | : Viktoria V. Hnatkovska |
| Publisher | : |
| Total Pages | : 36 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
Why do investors trade a lot in foreign assets and hold so little of them in their portfolios? This paper shows that both observations can arise naturally in the presence of nondiversifiable nontraded consumption risk when each country specializes in production, preferences exhibit consumption home bias, and asset markets are incomplete. Using a general equilibrium two-country, two-sector (tradable and nontradable) model of the world economy with production I show that low diversification occurs because variations in relative prices (i) increase the riskiness of foreign assets and (ii) facilitate risk-sharing across countries. Large and volatile capital flows are necessary to take advantage of international risk premia differentials that occur in response to productivity changes in the nontradable sector. I characterize the optimal portfolio holdings, the evolution of the investment opportunity set, the risk premium, and the dynamics of capital flows using a new methodology for solving dynamic general equilibrium models with incomplete markets and portfolio choice.
| Author | : |
| Publisher | : |
| Total Pages | : 44 |
| Release | : 1997 |
| Genre | : |
| ISBN | : |
| Author | : Philipp Harms |
| Publisher | : |
| Total Pages | : 64 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
We show that including distribution costs into a general equilibrium model of international portfolio choice contributes to explaining the 'home bias' in international equity investment. Our model is able to replicate observed investment positions for a wide range of parameter values, even if agents have an incentive to hedge labor income risk by purchasing foreign equity. This is because the existence of a retail sector affects both the correlation of domestic returns with the domestic price level and the correlation between financial and nonfinancial income.
| Author | : Vivian Z. Yue |
| Publisher | : International Monetary Fund |
| Total Pages | : 32 |
| Release | : 2011-07-01 |
| Genre | : Business & Economics |
| ISBN | : 1462330452 |
Emerging markets business cycle models treat default risk as part of an exogenous interest rate on working capital, while sovereign default models treat income fluctuations as an exogenous endowment process with ad-noc default costs. We propose instead a general equilibrium model of both sovereign default and business cycles. In the model, some imported inputs require working capital financing; default on public and private obligations occurs simultaneously. The model explains several features of cyclical dynamics around default triggers an efficiency loss as these inputs are replaced by imperfect substitutes; and default on public and private obligations occurs simultaneously. The model explains several features of cyclical dynamics around deraults, countercyclical spreads, high debt ratios, and key business cycle moments.
| Author | : Miklós Koren |
| Publisher | : International Monetary Fund |
| Total Pages | : 48 |
| Release | : 2003-12-01 |
| Genre | : Business & Economics |
| ISBN | : 1451875614 |
The paper provides a general-equilibrium model where incomplete international financial markets lead to insufficient industrial specialization and low international trade. As international portfolio diversification is limited and productivity is uncertain, investors wish to maintain a diversified industrial structure rather than specializing according to their comparative advantage. Financial globalization then induces more specialization and more trade. The present framework yields explicit closed-form solutions for the volume and the structure of trade. Empirical results support the implications of the theory. Trade in financially open countries is (i) higher, (ii) more dependent on productivity differences, and (iii) less sensitive to industry risks.
