Advanced Search
MyIDEAS: Login to save this paper or follow this series

International portfolios with supply, demand and redistributive shocks

Contents:

Author Info

  • Nicolas Coeurdacier
  • Robert Kollmann

    (European Center for Advanced Research in Economics and Statistics (ECARES))

  • Philippe Martin

    (Département d'économie)

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://spire.sciencespo.fr/hdl:/2441/c8dmi8nm4pdjkuc9g7485ckbm/resources/nberisom-1.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/c8dmi8nm4pdjkuc9g7485ckbm.

as in new window
Length:
Date of creation: 2009
Date of revision:
Publication status: Published in NBER International Seminar on Macroeconomics 2007, pp.231-263
Handle: RePEc:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g7485ckbm

Contact details of provider:
Web page: http://www.sciencespo.fr/
More information through EDIRC

Related research

Keywords: International risk sharing; International portfolios; Home equity bias; Valuation e¤ects;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, American Economic Association, vol. 87(1), pages 170-80, March.
  2. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "International financial adjustment," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  3. Bottazzi, Laura & Pesenti, Paolo & van Wincoop, Eric, 1996. "Wages, profits and the international portfolio puzzle," European Economic Review, Elsevier, Elsevier, vol. 40(2), pages 219-254, February.
  4. Coeurdacier, Nicolas, 2008. "Do Trade Costs in Goods Market Lead to Home Bias in Equities?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6991, C.E.P.R. Discussion Papers.
  5. Nicolas Coeurdacier & Stéphane Guibaud, 2005. "A dynamic equilibrium model of imperfectly integrated financial markets," PSE Working Papers, HAL halshs-00590775, HAL.
  6. Harold L. Cole & Maurice Obstfeld, 1989. "Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter?," NBER Working Papers 3027, National Bureau of Economic Research, Inc.
  7. Cédric Tille & Eric van Wincoop, 2007. "International capital flows," Staff Reports, Federal Reserve Bank of New York 280, Federal Reserve Bank of New York.
  8. Fabio Ghironi & Jaewoo Lee & Alessandro Rebucci, 2007. "The Valuation Channel of External Adjustment," NBER Working Papers 12937, National Bureau of Economic Research, Inc.
  9. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2005. "International risk-sharing and the transmission of productivity shocks," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 826, Board of Governors of the Federal Reserve System (U.S.).
  10. Philip Lane & Gian Maria Milesi-Ferreti, 2005. "A Global Perspective on External Positions," Trinity Economics Papers, Trinity College Dublin, Department of Economics 2000516, Trinity College Dublin, Department of Economics.
  11. Lane, Philip R. & Shambaugh, Jay C, 2007. "Financial Exchange Rates and International Currency Exposures," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6473, C.E.P.R. Discussion Papers.
  12. Christian Julliard, 2004. "Human capital and international portfolio choice," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 4813, London School of Economics and Political Science, LSE Library.
  13. Anna Pavlova & Roberto Rigobon, 2003. "Asset Prices and Exchange Rates," NBER Working Papers 9834, National Bureau of Economic Research, Inc.
  14. Eric van Wincoop & Francis E. Warnock, 2006. "Is Home Bias in Assets Related to Home Bias in Goods?," NBER Working Papers 12728, National Bureau of Economic Research, Inc.
  15. Julio J. Rotemberg & Michael Woodford, 1999. "The Cyclical Behavior of Prices and Costs," NBER Working Papers 6909, National Bureau of Economic Research, Inc.
  16. Philip R. Lane & Gian Maria Milesi-Ferretti, 2007. "Europe and global imbalances," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 22, pages 519-573, 07.
  17. Uppal, Raman, 1993. " A General Equilibrium Model of International Portfolio Choice," Journal of Finance, American Finance Association, American Finance Association, vol. 48(2), pages 529-53, June.
  18. Jonathan Heathcote & Fabrizio Perri, 2001. "Financial Globalization and Real Regionalization," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 01-11, New York University, Leonard N. Stern School of Business, Department of Economics.
  19. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," 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 qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  20. David K. Backus & Gregor W. Smith, 1993. "Consumption and Real Exchange Rates in Dynamic Economies with Non-Traded Goods," Working Papers, Queen's University, Department of Economics 1252, Queen's University, Department of Economics.
  21. Christian Broda & David E. Weinstein, 2007. "Product Creation and Destruction: Evidence and Price Implications," NBER Working Papers 13041, National Bureau of Economic Research, Inc.
  22. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2003. "International Financial Integration," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3769, C.E.P.R. Discussion Papers.
  23. Helene Rey & Philippe Martin, 2005. "Globalization and Emerging Markets: With or Without Crash?," 2005 Meeting Papers, Society for Economic Dynamics 152, Society for Economic Dynamics.
  24. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, Elsevier, vol. 10(3), pages 335-359.
  25. Robert Kollmann, 2006. "A Dynamic Equilibrium Model of International Portfolio Holdings: Comment," Econometrica, Econometric Society, Econometric Society, vol. 74(1), pages 269-273, 01.
  26. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," NBER Working Papers 7869, National Bureau of Economic Research, Inc.
  27. Martin, Philippe & Rey, Helene, 2004. "Financial super-markets: size matters for asset trade," Journal of International Economics, Elsevier, Elsevier, vol. 64(2), pages 335-361, December.
  28. Brainard, William & Tobin, James, 1991. "On the Internationalization of Portfolios," Discussion Papers, The Research Institute of the Finnish Economy 389, The Research Institute of the Finnish Economy.
  29. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
  30. Benigno, Gianluca & Thoenissen, Christoph, 2008. "Consumption and real exchange rates with incomplete markets and non-traded goods," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(6), pages 926-948, October.
  31. Kollmann, Robert, 1995. "Consumption, real exchange rates and the structure of international asset markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 14(2), pages 191-211, April.
  32. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 249-271, March.
  33. Cedric Tille, 2005. "Financial integration and the wealth effect of exchange rate fluctuations," Staff Reports, Federal Reserve Bank of New York 226, Federal Reserve Bank of New York.
  34. Stijn Van Nieuwerburgh & Hanno Lustig, 2005. "The Returns on Human Wealth: Good News on Wall Street is Bad News on Main Street," 2005 Meeting Papers, Society for Economic Dynamics 105, Society for Economic Dynamics.
  35. Hanno Lustig & Stijn Van Nieuwerburgh, 2008. "The Returns on Human Capital: Good News on Wall Street is Bad News on Main Street," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 21(5), pages 2097-2137, September.
  36. Heathcote, Jonathan & Perri, Fabrizio, 1999. "Financial Autarky and International Business Cycles," Working Paper Series in Economics and Finance, Stockholm School of Economics 320, Stockholm School of Economics, revised 30 Apr 2000.
  37. Michael B. Devereux & Alan Sutherland, 2007. "Solving for Country Portfolios in Open Economy Macro Models," Working Papers, Hong Kong Institute for Monetary Research 162007, Hong Kong Institute for Monetary Research.
  38. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2007. "Productivity, terms of trade and the `home market effect'," Journal of International Economics, Elsevier, Elsevier, vol. 73(1), pages 99-127, September.
  39. 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.
  40. Olivier Blanchard & Francesco Giavazzi & Filipa Sa, 2005. "International Investors, the U.S. Current Account, and the Dollar," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 1-66.
  41. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, American Finance Association, vol. 60(3), pages 1495-1534, 06.
  42. Robert Kollmann, 2006. "A dynamic general equilibrium model of international portfolio holding: comment," ULB Institutional Repository, ULB -- Universite Libre de Bruxelles 2013/7622, ULB -- Universite Libre de Bruxelles.
  43. Akito Matsumoto & Charles Engel, 2005. "Portfolio Choice in a Monetary Open-Economy DSGE Model," IMF Working Papers, International Monetary Fund 05/165, International Monetary Fund.
  44. repec:tcd:wpaper:tep16 is not listed on IDEAS
  45. Kollmann, Robert, 1996. "Incomplete asset markets and the cross-country consumption correlation puzzle," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 20(5), pages 945-961, May.
  46. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g7485ckbm. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Spire @ Sciences Po Library).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.