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Country Portfolios In Open Economy Macro‐Models

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  • Michael B. Devereux
  • Alan Sutherland

Abstract

This paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro models. The method is widely applicable, simple to implement, and gives analytical solutions for equilibrium portfolio positions in any combination or types of asset. It can be used in models with any number of assets, whether markets are complete or incomplete, and can be applied to stochastic dynamic general equilibrium models of any dimension, so long as the model is amenable to a solution using standard approximation methods. We first illustrate the approach using a simple two-asset endowment economy model, and then show how the results extend to the case of any number of assets and general economic structure.

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File URL: http://hdl.handle.net/10.1111/j.1542-4774.2010.01010.x
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Bibliographic Info

Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 9 (2011)
Issue (Month): 2 (04)
Pages: 337-369

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Handle: RePEc:bla:jeurec:v:9:y:2011:i:2:p:337-369

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  1. Tille, Cédric & van Wincoop, Eric, 2008. "International Capital Flows," CEPR Discussion Papers 6705, C.E.P.R. Discussion Papers.
  2. Devereux, Michael B & Saito, Makoto, 2006. "A Portfolio Theory of International Capital Flows," CEPR Discussion Papers 5746, C.E.P.R. Discussion Papers.
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  20. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Closing Small Open Economy Models," Departmental Working Papers 200115, Rutgers University, Department of Economics.
  21. Michael B Devereux & Alan Sutherland, 2007. " Country Portfolio Dynamics," CDMA Conference Paper Series 0706, Centre for Dynamic Macroeconomic Analysis.
  22. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
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