IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

International equity and bond positions in a DSGE model with variety risk in consumption

  • Hamano Masashige

    ()

    (University of Luxembourg CREA)

This paper analyzes equity and bond positions in a two-country DSGE model where the number of varieties, i.e. extensive margin is endogenously determined. Households take care about not only the price of goods but also the variety of goods they consume. The welfare-based real exchange rate fluctuations matter in inter- national consumption risk sharing. We investigate analytically and numerically the implication of "variety risk" induced by fluctuations in extensive margins. In nu- merical computation of zero-order steady state portfolios, we employ the Devereux and Sutherland method. We show that, with variety risk, home biased equity posi- tions are further amplified compared to those obtained with the standard model in the literature. The result is shown to be robust with or without firm heterogeneity in marginal costs of production.

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://wwwfr.uni.lu/content/download/52328/627367/file/2012-05%20-%20International%20equity%20and%20bond%20positions%20in%20a%20DSGE%20model%20with%20variety%20risk%20in%20consumption.pdf
Download Restriction: no

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 12-05.

as
in new window

Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:luc:wpaper:12-05
Contact details of provider: Postal:
162a avenue de la Faïencerie, L-1511 Luxembourg

Phone: (+352) 46 66 44
Fax: (+352) 46 66 44 ext 633
Web page: http://wwwen.uni.lu/research/fdef/crea
Email:


More information through EDIRC

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. Nicolas Coeurdacier & Robert Kollmann & Philippe Martin, 2007. "International Portfolios with Supply, Demand and Redistributive Shocks," NBER Working Papers 13424, National Bureau of Economic Research, Inc.
  2. Gian Maria Milesi-Ferretti, & Philip R. Lane, 2003. "International Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp03, IIIS.
  3. Coeurdacier, Nicolas, 2009. "Do trade costs in goods market lead to home bias in equities?," Journal of International Economics, Elsevier, vol. 77(1), pages 86-100, February.
  4. Nicolas Coeurdacier & Hélène Rey, 2010. "Home bias in open economy financial macroeconomics," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  5. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
  6. Nicolas Coeurdacier & Robert Kollmann & Philippe Martin, 2009. "International portfolios, capital accumulation and foreign assets dynamics," Globalization and Monetary Policy Institute Working Paper 27, Federal Reserve Bank of Dallas.
  7. Michael B. Devereux & Alan Sutherland, 2011. "Country Portfolios In Open Economy Macro‐Models," Journal of the European Economic Association, European Economic Association, vol. 9(2), pages 337-369, 04.
  8. Gian-Maria Milesi-Ferretti & Philip R. Lane, 2005. "A Global Perspectiveon External Positions," IMF Working Papers 05/161, International Monetary Fund.
  9. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "International Financial Adjustment," CEPR Discussion Papers 4923, C.E.P.R. Discussion Papers.
  10. Vahagn Galstyan and Philip R. Lane, 2008. "External Imbalances and the Extensive Margin of Trade," The Institute for International Integration Studies Discussion Paper Series iiisdp259, IIIS.
  11. Nicolas Coeurdacier & Pierre-Olivier Gourinchas, 2009. "When bonds matter: home bias in goods and assets," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  12. Jonathan Heathcote & Fabrizio Perri, 2004. "The international diversification puzzle is not as bad as you think," 2004 Meeting Papers 152, Society for Economic Dynamics.
  13. Uppal, Raman, 1993. " A General Equilibrium Model of International Portfolio Choice," Journal of Finance, American Finance Association, vol. 48(2), pages 529-53, June.
  14. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
  15. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
  16. Philippe Martin and H�l�ne Rey., 2000. "Financial Super-Markets: Size Matters for Asset Trade," Center for International and Development Economics Research (CIDER) Working Papers C00-110, University of California at Berkeley.
  17. Piet Sercu & Rosanne Vanpée, 2008. "Estimating the Costs of International Equity Investments," Review of Finance, European Finance Association, vol. 12(4), pages 587-634.
  18. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2007. "Productivity, terms of trade and the `home market effect'," Journal of International Economics, Elsevier, vol. 73(1), pages 99-127, September.
  19. 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.
  20. Kollmann, Robert, 2006. "International Portfolio Equilibrium and the Current Account," CEPR Discussion Papers 5512, C.E.P.R. Discussion Papers.
  21. Bilbiie, Florin O. & Ghironi, Fabio & Melitz, Marc J., 2012. "Endogenous Entry, Product Variety, and Business Cycles," Scholarly Articles 10914281, Harvard University Department of Economics.
  22. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
  23. Masashige Hamano, 2010. "The consumption-real exchange rate anomaly with extensive margin," Post-Print halshs-00554871, HAL.
  24. Michael B. Devereux & Alan Sutherland, 2009. "Valuation Effects and the Dynamics of Net External Assets," NBER Working Papers 14794, National Bureau of Economic Research, Inc.
  25. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  26. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  27. 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.
  28. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  29. Giancarlo Corsetti & Philippe Martin & Paolo Pesenti, 2008. "Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment," RSCAS Working Papers 2008/01, European University Institute.
  30. Heathcote, Jonathan & Perri, Fabrizio, 2002. "Financial autarky and international business cycles," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 601-627, April.
  31. Robert Kollmann, 2006. "A Dynamic Equilibrium Model of International Portfolio Holdings: Comment," Econometrica, Econometric Society, vol. 74(1), pages 269-273, 01.
  32. Peter Klenow & Huiyu Li & Albert Bollard, 2013. "Entry Costs Rise with Development," 2013 Meeting Papers 471, Society for Economic Dynamics.
  33. repec:tcd:wpaper:tep16 is not listed on IDEAS
  34. Akito Matsumoto & Charles Engel, 2009. "International Risk Sharing: Through Equity Diversification or Exchange Rate Hedging?," IMF Working Papers 09/138, International Monetary Fund.
  35. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:luc:wpaper:12-05. 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: (Elisa Ferreira)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.