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The Role of Nonseparable Utility and Nontradeables in International Business Cycle and Portfolio Choice

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  • Akito Matsumoto

Abstract

This paper analyzes the role of nonseparable utility and nontradables in business cycles and portfolio choice. I find that nonseparability in utility can change the portfolio choice significantly. Unlike previous results in literature, the optimal portfolio of the traded-good sector equities is no longer a well diversified portfolio and becomes sensitive to parameter values. As a result, the model often generates extreme home bias or anti-home bias portfolios implying that some frictions in asset markets, which prevent agents from holding these extreme portfolios, can explain the lack of international risk sharing.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/163.

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Length: 32
Date of creation: 01 Jul 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/163

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Related research

Keywords: Asset management; Risk management; Economic models; traded good; traded goods; correlation; equations; equation; covariance; calibration; correlations; general equilibrium model; general equilibrium models; market structure; perturbations; standard deviation; production model; logarithm;

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References

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  25. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
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