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Country Portfolio Dynamics

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Author Info

  • Alan Sutherland
  • Michael B. Devereux

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/283.

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Length: 27
Date of creation: 01 Dec 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/283

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Keywords: Bonds; International bond markets; equations; equation; bond; general equilibrium models; random variable; general equilibrium model; foreign bonds; covariance; functional form; international capital; state bond; financial markets; nominal bonds; returns on bonds; international financial markets; perturbation; nominal exchange rate; financial globalization; stochastic models; foreign bond; constant term; bond markets; functional forms; asset markets; international bond; hedge;

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References

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  1. Fabio Ghironi & Jaewoo Lee & Alessandro Rebucci, 2009. "The Valuation Channel of External Adjustment," Boston College Working Papers in Economics, Boston College Department of Economics 722, Boston College Department of Economics.
  2. Devereux, Michael B. & Sutherland, Alan, 2010. "Valuation effects and the dynamics of net external assets," Journal of International Economics, Elsevier, Elsevier, vol. 80(1), pages 129-143, January.
  3. Kollmann, Robert, 2006. "International Portfolio Equilibrium and the Current Account," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5512, C.E.P.R. Discussion Papers.
  4. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "International Financial Adjustment," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt124628cx, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  5. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
  6. Martin D. D. Evans & Viktoria Hnatkovska, 2005. "International Capital Flows, Returns and World Financial Integration," NBER Working Papers 11701, National Bureau of Economic Research, Inc.
  7. Giovanni Lombardo & Alan Sutherland, 2005. " Computing Second-Order-Accurate Solutions for Rational Expectation Models Using Linear Solution Methods," CDMA Conference Paper Series, Centre for Dynamic Macroeconomic Analysis 0504, Centre for Dynamic Macroeconomic Analysis.
  8. Schmitt-Grohé, Stephanie & Uribe, Martín, 2001. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2963, C.E.P.R. Discussion Papers.
  9. Cedric Tille & Eric van Wincoop, 2007. "International Capital Flows," Working Papers, Hong Kong Institute for Monetary Research 122007, Hong Kong Institute for Monetary Research.
  10. Charles Engel & Akito Matsumoto, 2006. "Portfolio Choice in a Monetary Open-Economy DSGE Model," NBER Working Papers 12214, National Bureau of Economic Research, Inc.
  11. Christopher A. Sims & Jinill Kim & Sunghyun Kim, 2004. "Calculating and Using Second Order Accurate Solution of Discrete Time Dynamic Equilibrium Models," Econometric Society 2004 North American Winter Meetings, Econometric Society 411, Econometric Society.
  12. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "A Global Perspective on External Positions," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp079, IIIS.
  13. Samuelson, Paul A, 1970. "The Fundamental Approximation Theorem of Portfolio Analysis in terms of Means, Variances, and Higher Moments," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 37(4), pages 537-42, October.
  14. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262100711, December.
  15. Michael B. Devereux & Alan Sutherland, 2007. "Solving for Country Portfolios in Open Economy Macro Models," IMF Working Papers 07/284, International Monetary Fund.
  16. Cedric Tille, 2003. "The impact of exchange rate movements on U.S. foreign debt," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 9(Jan).
  17. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, Elsevier, vol. 55(2), pages 263-294, December.
  18. Devereux, Michael B & Saito, Makoto, 2006. "A Portfolio Theory of International Capital Flows," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5746, C.E.P.R. Discussion Papers.
  19. Cedric Tille, 2005. "Financial Integration and the Wealth Effect of Exchange Rate Fluctuations," 2005 Meeting Papers, Society for Economic Dynamics 282, Society for Economic Dynamics.
  20. Jinill Kim & Sunghyun Kim & Ernst Schaumburg & Christopher A. Sims, 2003. "Calculating and Using Second Order Accurate Solutions of Discrete Time," Levine's Bibliography 666156000000000284, UCLA Department of Economics.
  21. Akito Matsumoto & Charles Engel, 2009. "The International Diversification Puzzle when Goods Prices Are Sticky," IMF Working Papers 09/12, International Monetary Fund.
  22. Sy-Ming Guu & Kenneth L. Judd, 2001. "Asymptotic methods for asset market equilibrium analysis," Economic Theory, Springer, Springer, vol. 18(1), pages 127-157.
  23. repec:tcd:wpaper:tep16 is not listed on IDEAS
  24. 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, American Economic Association, vol. 1(2), pages 155-88, July.
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