EconStor >
Deutsche Bundesbank, Forschungszentrum, Frankfurt am Main >
Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/27633
  
Title:International portfolios, capital accumulation and foreign assets dynamics PDF Logo
Authors:Coeurdacier, Nicolas
Kollmann, Robert Miguel W. K.
Martin, Philippe J.
Issue Date:2008
Series/Report no.:Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2008,19
Abstract:Despite the liberalisation of capital flows among OECD countries, equity home bias remains sizable. We depart from the two familiar explanation of equity home bias: transaction costs that impede international diversification, and terms of trade responses to supply shocks that provide risk sharing, so that there is little incentive to hold diversified portfolios. We show that the interaction of the following ingredients generates a realistic equity home bias: capital accumulation, shocks to the efficiency of physical investment, as well as international trade in stocks and bonds. In our model, domestic stocks are used to hedge fluctuation in local wage income. Terms of trade risk is hedged using bonds denominated in local goods and in foreign goods. In contrast to related models, the low level of international diversification does not depend on strongly countercyclical terms of trade. The model also reproduces the cyclical dynamics of foreign asset positions and of international capital flows.
Subjects:capital accumulation
international equity and bond portfolios
capital flows
current account
valuation effects
terms of trade
JEL:G1
F3
F2
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

Files in This Item:
File Description SizeFormat
200819dkp.pdf764.02 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/27633

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.