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International Portfolios with Supply, Demand, and Redistributive Shocks

Listed author(s):
  • Nicolas Coeurdacier
  • Robert Kollmann

    (ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université Libre de Bruxelles [Bruxelles])

  • Philippe Martin

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

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.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00649209.

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Date of creation: 2008
Publication status: Published in NBER International Seminar on Macroeconomics 2007, University of Chicago Press, pp.231-263, 2008
Handle: RePEc:hal:cesptp:hal-00649209
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00649209
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