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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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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. Nicolas Coeurdacier & Pierre-Olivier Gourinchas, 2011. "When Bonds Matter: Home Bias in Goods and Assets," NBER Working Papers 17560, National Bureau of Economic Research, Inc.
  2. Nicolas Coeurdacier, 2009. "Do trade costs in goods market lead to home bias in equities?," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  3. 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.
  4. Philip R. Lane and Jay C. Shambaugh, 2008. "The Long or Short of it: Determinants of Foreign Currency Exposure in External Balance Sheets," The Institute for International Integration Studies Discussion Paper Series iiisdp253, IIIS.
  5. Akito Matsumoto & Charles Engel, 2009. "The International Diversification Puzzle when Goods Prices Are Sticky," IMF Working Papers 09/12, International Monetary Fund.
  6. 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.
  7. Pavlova, Anna & Rigobon, Roberto, 2004. "Asset Prices and Exchange Rates," Working papers 4322-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  8. Baxter, M. & Jermann, U.J., 1993. "The International Diversification Puzzle is Worse than you Think," RCER Working Papers 350, University of Rochester - Center for Economic Research (RCER).
  9. 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.
  10. Kollmann, Robert, 2006. "International Portfolio Equilibrium and the Current Account," CEPR Discussion Papers 5512, C.E.P.R. Discussion Papers.
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Citations

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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.
  2. Katrin Rabitsch & Serhiy Stepanchuk & Viktor Tsyrennikov, 2014. "International Portfolios: A Comparison of Solution Methods," Department of Economics Working Papers wuwp159, Vienna University of Economics, Department of Economics.

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