Betting against your neighbor: a quantitative investigation
AbstractWe investigate a two-country model of real business cycles along the lines of Backus, Kehoe, and Kydland (1992) with one new feature: country one residents are ambiguous [along the lines of Epstein (2001)] about the productivity shocks of country two and vice versa. The model is calibrated and solved numerically. In equilibrium, because domestic residents are ambiguity-averse, they bet against productivity abroad being high, thus lowering their holding of foreign equity relative to the benchmark, no-ambiguity model. Thus, consumption correlations across countries fall significantly. Moreover, foreign real investment behaves differently than in the benchmark mod
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 443.
Date of creation: 2004
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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ambiguity; international real business cycles; portfolio choice;
Find related papers by JEL classification:
- F0 - International Economics - - General
- G1 - Financial Economics - - General Financial Markets
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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