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International cross-holdings of bonds in a two-good DSGE model

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  • Amdur, David

Abstract

I solve for equilibrium portfolios in a two-country, two-good dynamic stochastic general equilibrium (DSGE) model where the only traded assets are locally-denominated real bonds. Unless the elasticity of substitution between goods is exceptionally low, the model predicts that each country will hold a short position in foreign bonds.

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File URL: http://www.sciencedirect.com/science/article/B6V84-502GGY6-2/2/fada789862bc8f83b0310bb63540c26e
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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 108 (2010)
Issue (Month): 2 (August)
Pages: 163-166

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Handle: RePEc:eee:ecolet:v:108:y:2010:i:2:p:163-166

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: International diversification Portfolio choice Open economy macroeconomics DSGE models;

References

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  1. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
  2. Charles Engel & Akito Matsumoto, 2009. "The International Diversification Puzzle When Goods Prices Are Sticky: It's Really about Exchange-Rate Hedging, Not Equity Portfolios," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 155-88, July.
  3. Nicolas Coeurdacier, 2006. "Do trade costs in goods market lead to home bias in equities?," 2006 Meeting Papers 111, Society for Economic Dynamics.
  4. Anna Pavlova & Roberto Rigobon, 2003. "Asset Prices and Exchange Rates," NBER Working Papers 9834, National Bureau of Economic Research, Inc.
  5. Nicolas Coeurdacier & Robert Kollmann & Philippe Martin, 2009. "International Portfolios with Supply, Demand and Redistributive Shocks," NBER Chapters, in: NBER International Seminar on Macroeconomics 2007, pages 231-263 National Bureau of Economic Research, Inc.
  6. Lane, Philip R. & Shambaugh, Jay C, 2008. "The Long or Short of it: Determinants of Foreign Currency Exposure in External Balance Sheets," CEPR Discussion Papers 6887, C.E.P.R. Discussion Papers.
  7. Nicolas Coeurdacier & Pierre-Olivier Gourinchas, 2008. "When bonds matter: home bias in goods and assets," Working Paper Series 2008-25, Federal Reserve Bank of San Francisco.
  8. Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, vol. 87(1), pages 170-80, March.
  9. Kollmann, Robert, 2006. "International Portfolio Equilibrium and the Current Account," CEPR Discussion Papers 5512, C.E.P.R. Discussion Papers.
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Cited by:
  1. Fedotenkov, I., 2012. "Pensions and ageing in a globalizing world. International spillover effects via trade and factor mobility," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5590843, Tilburg University.

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