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International cross-holdings of bonds in a two-good DSGE model

  • Amdur, David

I solve for equilibrium portfolios in a two-country, two-good dynamic stochastic general equilibrium (DSGE) model where the only traded assets are locally-denominated real bonds. Unless the elasticity of substitution between goods is exceptionally low, the model predicts that each country will hold a short position in foreign bonds.

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File URL: http://www.sciencedirect.com/science/article/B6V84-502GGY6-2/2/fada789862bc8f83b0310bb63540c26e
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 108 (2010)
Issue (Month): 2 (August)
Pages: 163-166

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Handle: RePEc:eee:ecolet:v:108:y:2010:i:2:p:163-166
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Coeurdacier, Nicolas & Gourinchas, Pierre-Olivier, 2011. "When Bonds Matter: Home Bias in Goods and Assets," CEPR Discussion Papers 8649, C.E.P.R. Discussion Papers.
  2. Nicolas Coeurdacier & Robert Kollmann & Philippe Martin, 2009. "International Portfolios with Supply, Demand and Redistributive Shocks," NBER Chapters, in: NBER International Seminar on Macroeconomics 2007, pages 231-263 National Bureau of Economic Research, Inc.
  3. Baxter, M. & Jermann, U.J., 1993. "The International Diversification Puzzle is Worse than you Think," RCER Working Papers 350, University of Rochester - Center for Economic Research (RCER).
  4. Coeurdacier, Nicolas, 2008. "Do Trade Costs in Goods Market Lead to Home Bias in Equities?," CEPR Discussion Papers 6991, C.E.P.R. Discussion Papers.
  5. Kollmann, Robert, 2006. "International Portfolio Equilibrium and the Current Account," CEPR Discussion Papers 5512, C.E.P.R. Discussion Papers.
  6. Pavlova, Anna & Rigobon, Roberto, 2003. "Asset Prices and Exchange Rates," Working papers 4322-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Philip R. Lane & Jay C. Shambaugh, 2009. "The Long or Short of it: Determinants of Foreign Currency Exposure in External Balance Sheets," NBER Working Papers 14909, National Bureau of Economic Research, Inc.
  8. 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, vol. 1(2), pages 155-88, July.
  9. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
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