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Country Portfolio Dynamics

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  • Michael B Devereux
  • Alan Sutherland
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    Abstract

    This paper presents a general approximation method for characterizing timevarying 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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    File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/cp0706.pdf
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    Bibliographic Info

    Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Conference Paper Series with number 0706.

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    Date of creation: Nov 2007
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    Handle: RePEc:san:cdmacp:0706

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    Postal: Department of Economics, University of St. Andrews, Fife KY16 9AL
    Phone: 01334 462420
    Fax: 01334 462444
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    Web page: http://www.st-andrews.ac.uk/cdma
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    Keywords: Country portfolios; solution methods.;

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    References

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    1. 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 411, Econometric Society.
    2. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "A Global Perspective on External Positions," The Institute for International Integration Studies Discussion Paper Series iiisdp079, IIIS.
    3. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," Departmental Working Papers 200106, Rutgers University, Department of Economics.
    4. Charles Engel & Akito Matsumoto, 2006. "Portfolio Choice in a Monetary Open-Economy DSGE Model," NBER Working Papers 12214, National Bureau of Economic Research, Inc.
    5. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," Trinity Economics Papers 20014, Trinity College Dublin, Department of Economics.
    6. Devereux, Michael B & Sutherland, Alan, 2006. "Solving for Country Portfolios in Open Economy Macro Models," CEPR Discussion Papers 5966, C.E.P.R. Discussion Papers.
    7. 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.
    8. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "International Financial Adjustment," International Finance 0505004, EconWPA.
    9. Martin D D Evans & Viktoria Hnatkovska, 2006. "International Capital Flows Returns and World Financial Integration," 2006 Meeting Papers 60, Society for Economic Dynamics.
    10. Kenneth L. Judd & Sy-Ming Guu, 2001. "Asymptotic Methods for Asset Market Equilibrium Analysis," NBER Working Papers 8135, National Bureau of Economic Research, Inc.
    11. 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, vol. 37(4), pages 537-42, October.
    12. Kollmann, Robert, 2006. "International Portfolio Equilibrium and the Current Account," CEPR Discussion Papers 5512, C.E.P.R. Discussion Papers.
    13. 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, vol. 9(Jan).
    14. repec:tcd:wpaper:tep16 is not listed on IDEAS
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    Citations

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    Cited by:
    1. Tille, Cédric & van Wincoop, Eric, 2008. "International Capital Flows," CEPR Discussion Papers 6705, C.E.P.R. Discussion Papers.
    2. Michael B. Devereux & Alan Sutherland, 2008. "Country Portfolios in Open Economy Macro Models," NBER Working Papers 14372, National Bureau of Economic Research, Inc.
    3. Hnatkovska, Viktoria, 2010. "Home bias and high turnover: Dynamic portfolio choice with incomplete markets," Journal of International Economics, Elsevier, vol. 80(1), pages 113-128, January.
    4. Ozge Senay & Alan Sutherland, 2010. "The Timing of Asset Trade and Optimal Policy in Dynamic Open Economies," CDMA Working Paper Series 201006, Centre for Dynamic Macroeconomic Analysis.
    5. Devereux, Michael B. & Sutherland, Alan, 2008. "Financial globalization and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1363-1375, November.
    6. Didier, Tatiana & Lowenkron, Alexandre, 2012. "The current account as a dynamic portfolio choice problem," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 518-541.
    7. Devereux, Michael B. & Sutherland, Alan, 2010. "Valuation effects and the dynamics of net external assets," Journal of International Economics, Elsevier, vol. 80(1), pages 129-143, January.
    8. Martin Schmitz, 2010. "Financial Markets and International Risk Sharing," Open Economies Review, Springer, vol. 21(3), pages 413-431, July.

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