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International Portfolios with Supply, Demand and Redistributive Shocks

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  • Nicolas Coeurdacier
  • Robert Kollmann
  • Philippe Martin

Abstract

This paper explains three key stylized facts observed in industrialized countries: 1) portfolio holdings are biased towards local equity; 2) international portfolios are long in foreign currency assets and short in domestic currency; 3) the depreciation of a country's exchange rate is associated with a net external capital gain, i.e. with a positive wealth transfer from the rest of the world. We present a two-country, two-good model with trade in stocks and bonds, and three types of disturbances: shocks to endowments, to the relative demand for home vs. foreign goods, and to the distribution of income between labor and capital. With these shocks, optimal international portfolios are shown to be consistent with the stylized facts.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13424.

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Date of creation: Sep 2007
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Publication status: published as Nicolas Coeurdacier, Robert Kollmann, Philippe Martin. "International Portfolios with Supply, Demand and Redistributive Shocks," in Richard Clarida and Francesco Giavazzi, organizers, "NBER International Seminar on Macroeconomics 2007" University of Chicago Press (2008)
Handle: RePEc:nbr:nberwo:13424

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