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Limited participation and International Risk-Sharing

  • Nicolas Coeurdacier

    (SciencesPo and CEPR)

The ”consumption real exchange rate anomaly” is one of the most subborn puzzle in open economy macroeconomics. We make substantial progress by introducing limited participation in an otherwise standard model. In particular, one of our methodological contribution is to show how we can solve for the characteristics and the dynamics of optimal portfolios in such a setup.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 613.

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Date of creation: 2011
Date of revision:
Handle: RePEc:red:sed011:613
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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  1. 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.
  2. Robert Kollmann, 2006. "A dynamic general equilibrium model of international portfolio holding: comment," ULB Institutional Repository 2013/7622, ULB -- Universite Libre de Bruxelles.
  3. Heathcote, J. & Perri, F., 2001. "Financial Globalization and Real Regionalization," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-11, New York University, Leonard N. Stern School of Business-.
  4. Kraay, Aart & Loayza, Norman & Serven, Luis & Ventura, Jaume, 2004. "Country Portfolios," Policy Research Working Paper Series 3320, The World Bank.
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  6. Philippe Martin & Helene Rey, 2000. "Financial super-markets: size matters for asset trade," LSE Research Online Documents on Economics 20197, London School of Economics and Political Science, LSE Library.
  7. Coeurdacier, Nicolas & Guibaud, Stéphane, 2006. "A Dynamic Equilibrium Model of Imperfectly Integrated Financial Markets," ESSEC Working Papers DR 06014, ESSEC Research Center, ESSEC Business School.
  8. Pavlova, Anna & Rigobon, Roberto, 2010. "An asset-pricing view of external adjustment," Journal of International Economics, Elsevier, vol. 80(1), pages 144-156, January.
  9. Coeurdacier, Nicolas & Kollmann, Robert & Martin, Philippe, 2010. "International portfolios, capital accumulation and foreign assets dynamics," Journal of International Economics, Elsevier, vol. 80(1), pages 100-112, January.
  10. Daron Acemoglu & Jaume Ventura, 2002. "The World Income Distribution," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 659-694, May.
  11. Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June.
  12. Fabio Ghironi & Jaewoo Lee & Alessandro Rebucci, 2009. "The Valuation Channel of External Adjustment," Boston College Working Papers in Economics 722, Boston College Department of Economics.
  13. Kollmann, R., 1992. "Consumption, Real Exchange Rates and the Structure of International Asset Markets," Cahiers de recherche 9232, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  14. Harald Hau & Helene Rey, 2004. "Can Portfolio Rebalancing Explain the Dynamics of Equity Returns, Equity Flows, and Exchange Rates?," NBER Working Papers 10476, National Bureau of Economic Research, Inc.
  15. Robert Kollmann, 2012. "Limited asset market participation and the consumption-real exchange rate anomaly," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 566-584, May.
  16. Tucker McElroy, 2008. "Exact formulas for the Hodrick-Prescott filter," Econometrics Journal, Royal Economic Society, vol. 11(1), pages 209-217, 03.
  17. Michael B. Devereux & Makoto Saito, 2006. "A Portfolio Theory of International Capital Flows," Working Papers 112006, Hong Kong Institute for Monetary Research.
  18. Jonathan Heathcote & Fabrizio Perri, 2007. "The International Diversification Puzzle Is Not As Bad As You Think," NBER Working Papers 13483, National Bureau of Economic Research, Inc.
  19. Anna Pavlova & Roberto Rigobon, 2003. "Asset Prices and Exchange Rates," NBER Working Papers 9834, National Bureau of Economic Research, Inc.
  20. Robert Kollmann, 2008. "Comment on International prices and productivity: an empirical analysis of the transmission among OECD countries G. Corsetti, L. Dedola, S. Leduc)," ULB Institutional Repository 2013/13416, ULB -- Universite Libre de Bruxelles.
  21. Bottazzi, Laura & Pesenti, Paolo & van Wincoop, Eric, 1996. "Wages, profits and the international portfolio puzzle," European Economic Review, Elsevier, vol. 40(2), pages 219-254, February.
  22. Akito Matsumoto & Charles Engel, 2005. "Portfolio Choice in a Monetary Open-Economy DSGE Model," IMF Working Papers 05/165, International Monetary Fund.
  23. Jeffrey D. Sachs, 1981. "The Current Account and macroeconomic Adjustment in the 1970s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 201-282.
  24. Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August.
  25. Alejandro Justiniano & Giorgio E. Primiceri, 2008. "The Time-Varying Volatility of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 98(3), pages 604-41, June.
  26. Alejandro Justiniano & Northwestern University, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," Computing in Economics and Finance 2006 219, Society for Computational Economics.
  27. Uppal, Raman, 1993. " A General Equilibrium Model of International Portfolio Choice," Journal of Finance, American Finance Association, vol. 48(2), pages 529-53, June.
  28. Backus, David K. & Smith, Gregor W., 1993. "Consumption and real exchange rates in dynamic economies with non-traded goods," Journal of International Economics, Elsevier, vol. 35(3-4), pages 297-316, November.
  29. Robert Kollmann, 1998. "U.S. trade balance dynamics: the role of fiscal policy and productivity shocks and of financial market linkages," ULB Institutional Repository 2013/7634, ULB -- Universite Libre de Bruxelles.
  30. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  31. Kollmann, Robert, 2006. "International Portfolio Equilibrium and the Current Account," CEPR Discussion Papers 5512, C.E.P.R. Discussion Papers.
  32. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
  33. Robert Kollmann, 1996. "Incomplete asset markets and the cross-country consumption correlation puzzle," ULB Institutional Repository 2013/7640, ULB -- Universite Libre de Bruxelles.
  34. Akito Matsumoto, 2007. "The Role of Nonseparable Utility and Nontradeables in International Business Cycles and Portfolio Choice," IMF Working Papers 07/163, International Monetary Fund.
  35. 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.
  36. Warnock, Francis E., 2002. "Home bias and high turnover reconsidered," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 795-805, November.
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