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International Portfolios: A Comparison of Solution Methods

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Listed author(s):
  • Katrin Rabitsch

    ()

    (Department of Economics, Vienna University of Economics and Business)

  • Serhiy Stepanchuk

    ()

    (École Polytechnique Fédérale de Lausanne)

  • Viktor Tsyrennikov

    ()

    (Cornell University)

Abstract

We compare the performance of the perturbation-based (local) portfolio solution method of Devereux and Sutherland (2010a, 2011) with a global solution method. We find that the local method performs very well when the model is designed to capture stylized macroeconomic facts and countries/agents are symmetric, i.e. when the latter have similar size, face similar risks and trade assets with similar risk properties. It performs less satisfactory when the agents engaged in financial trade are asymmetric. The global solution method performs substantially better when the model is parameterized to match the observed equity premium, a key stylized finance fact.

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Paper provided by Vienna University of Economics and Business, Department of Economics in its series Department of Economics Working Papers with number wuwp159.

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Date of creation: Jan 2014
Handle: RePEc:wiw:wiwwuw:wuwp159
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Web page: http://www.wu.ac.at/economics/en

Keywords: Country Portfolios; Solution Methods;

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Find related papers by JEL classification:
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
  • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
  • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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Cited by:

  1. Michael Siemer & Adrien Verdelhan & Francois Gourio, 2015. "Uncertainty and International Capital Flows," 2015 Meeting Papers 880, Society for Economic Dynamics.
  2. Rabitsch, Katrin & Stepanchuk, Serhiy, 2014. "A Two Period Model with Portfolio Choice: Understanding Results from Different Solution Methods," Department of Economics Working Paper Series 4076, WU Vienna University of Economics and Business.
  3. Katrin Rabitsch & Serhiy Stepanchuk, 2014. "A Two Period Model with Portfolio Choice: Understanding Results from Different Solution Methods," Department of Economics Working Papers wuwp162, Vienna University of Economics and Business, Department of Economics.
  4. Gavazzoni, Federico & Santacreu, Ana Maria, 2015. "International R&D Spillovers and Asset Prices," Working Papers 2015-41, Federal Reserve Bank of St. Louis.
  5. Grzegorz R. Dlugoszek, 2016. "Solving DSGE Portfolio Choice Models with Asymmetric Countries," SFB 649 Discussion Papers SFB649DP2016-009, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  6. Trani, Tommaso, 2015. "Asset pledgeability and international transmission of financial shocks," Journal of International Money and Finance, Elsevier, vol. 50(C), pages 49-77.
  7. Eugeni, Sara, 2015. "Nominal Exchange Rates and Net Foreign Assets' Dynamics: the Stabilization Role of Valuation Effects," MPRA Paper 63549, University Library of Munich, Germany.
  8. Rabitsch, Katrin & Stepanchuk, Serhiy, 2014. "A two-period model with portfolio choice: Understanding results from different solution methods," Economics Letters, Elsevier, vol. 124(2), pages 239-242.
  9. Stepanchuk, Serhiy & Tsyrennikov, Viktor, 2015. "Portfolio and welfare consequences of debt market dominance," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 89-101.
  10. Khalil, Makram, 2016. "Cross-Border Portfolio Diversification under Trade Linkages," Annual Conference 2016 (Augsburg): Demographic Change 145811, Verein für Socialpolitik / German Economic Association.
  11. Coeurdacier, Nicolas & Rey, Hélène & Winant, Pablo, 2015. "Financial Integration and Growth in a Risky World," CEPR Discussion Papers 11009, C.E.P.R. Discussion Papers.
  12. Robert Ready & Mariano Croce & Federico Gavazzoni & Riccardo Colacito, 2016. "Currency Risk Factors in a Recursive Multi-Country Economy," 2016 Meeting Papers 297, Society for Economic Dynamics.

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