TY - JOUR
T1 - International equity and bond positions in a DSGE model with variety risk in consumption
AU - Hamano, Masashige
N1 - Funding Information:
I would like to thank E. Van Wincoop, two anonymous referees and Philippe Martin for their encouragement and guidance. I would also like to thank Marta Arespa Castelló, Nicolas Coeurdacier, Michael B. Devereux, Ippei Fujiwara, Fabio Ghironi, Robert Kollmann, Isabelle Méjean, Pierre M. Picard, Ridwan D. Rusli and Simeon Vosen for providing helpful comments and discussions. This project is supported by the National Research Fund , Luxembourg, and cofounded under the Marie Curie Actions of the European Commission ( FP7-COFUND ) (Grant Number 1029180 ) and JSPS KAKENHI Grant Number 25885071 . Of course, all remaining errors are my own.
Publisher Copyright:
© 2015 Elsevier B.V.
Copyright:
Copyright 2015 Elsevier B.V., All rights reserved.
PY - 2015/5/1
Y1 - 2015/5/1
N2 - This paper analyzes equity and bond positions in a two-country Dynamic Stochastic General Equilibrium model where the number of varieties, i.e., the extensive margins of products available to consumers, is endogenously determined. Fluctuations in the welfare-based real exchange rate, including those in the number of varieties, matter to international consumption risk sharing. We investigate the implication of such "variety risk" for the optimal portfolio choice and show that the variety risk generates home-biased equity positions, strengthening those obtained with the standard model in the literature. We also find preliminary empirical support for the mechanism.
AB - This paper analyzes equity and bond positions in a two-country Dynamic Stochastic General Equilibrium model where the number of varieties, i.e., the extensive margins of products available to consumers, is endogenously determined. Fluctuations in the welfare-based real exchange rate, including those in the number of varieties, matter to international consumption risk sharing. We investigate the implication of such "variety risk" for the optimal portfolio choice and show that the variety risk generates home-biased equity positions, strengthening those obtained with the standard model in the literature. We also find preliminary empirical support for the mechanism.
KW - Firm entry
KW - Firm heterogeneity
KW - Home biased equity puzzle
KW - Real exchange rate
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U2 - 10.1016/j.jinteco.2014.12.002
DO - 10.1016/j.jinteco.2014.12.002
M3 - Article
AN - SCOPUS:84929132836
VL - 96
SP - 212
EP - 226
JO - Journal of International Economics
JF - Journal of International Economics
SN - 0022-1996
IS - 1
ER -