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Research Note on "International Consumption Risk Sharing and Monetary Policy"

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  • Sven Blank

Abstract

This model analyzes the impact of monetary policy on international consumption risk sharing. To this end, the setup by Ghironi and Stebunovs (2008) is extended in two dimensions. First, to allow for international portfolio choices, cross-border trade of home and foreign equity is brought in. Second, to assign a non-trivial role to monetary policy, nominal price rigidities are introduced as in Bilbiie, Ghironi, and Melitz (2007). The model features incomplete goods as well as incomplete asset markets. Frictions in goods markets are given by variable iceberg-type costs when shipping goods. Financial markets are incomplete as the set of available assets cannot span all the uncertainty induced by potential shock scenarios. In addition, financial markets are not fully integrated as engagement in asset markets is costly. This research note gives technical details on the solution of the model. In the following section, the basic setup of the model as well as the main variables and equilibrium conditions of the model are briefly summarized. Section 3 presents the steady state.

Suggested Citation

  • Sven Blank, 2009. "Research Note on "International Consumption Risk Sharing and Monetary Policy"," Working Paper / FINESS 4.3, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwfin:diwfin4.3
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    References listed on IDEAS

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    1. Ghironi, Fabio & Lee, Jaewoo & Rebucci, Alessandro, 2015. "The valuation channel of external adjustment," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 86-114.
    2. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 299-353, National Bureau of Economic Research, Inc.
    3. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2012. "Endogenous Entry, Product Variety, and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 304-345.
    4. Sven Blank, 2009. "Research Note on "International Consumption Risk Sharing with Incomplete Goods and Asset Markets"," Working Paper / FINESS 4.1, DIW Berlin, German Institute for Economic Research.
    5. Sven Blank, 2009. "International Consumption Risk Sharing with Incomplete Goods and Asset Markets," Working Paper / FINESS 4.2, DIW Berlin, German Institute for Economic Research.
    6. repec:diw:diwfin:diwfin04010 is not listed on IDEAS
    7. Viktors Stebunovs & Fabio Ghironi, 2008. "The Domestic and International Effects of Financial Deregulation," 2008 Meeting Papers 676, Society for Economic Dynamics.
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