Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27634
Authors: 
Devereux, Michael B.
Sutherland, Alan
Year of Publication: 
2008
Series/Report no.: 
Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2008,20
Abstract: 
Recent data show substantial increases in the size of gross external asset and liability positions. The implications of these developments for optimal conduct of monetary policy are analyzed in a standard open economy model which is augmented to allow for endogenous portfolio choice. The model shows that monetary policy takes on new importance due to its impact on nominal asset returns. Nevertheless, the case for price stability as an optimal monetary rule remains. In fact, it is reinforced. Even without nominal price rigidities, price stability is optimal because it enhances the risk sharing properties of nominal bonds.
Subjects: 
Portfolio Choice
International Risk Sharing
Exchange Rate
JEL: 
F41
E58
E52
Document Type: 
Working Paper

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