Country portfolios in open economy macro-models

Michael B. Devereux, Alan Sutherland

    Research output: Contribution to journalArticlepeer-review

    78 Citations (Scopus)

    Abstract

    This paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro-models. The method is widely applicable, simple to implement, and gives analytical solutions for equilibrium portfolio positions in any combination or types of asset. It can be used in models with any number of assets, whether markets are complete or incomplete, and can be applied to stochastic dynamic general equilibrium models of any dimension, so long as the model is amenable to a solution using standard approximation methods. We first illustrate the approach using a simple two-asset endowment economy model, and then show how the results extend to the case of any number of assets and general economic structure.

    Original languageEnglish
    Pages (from-to)337-369
    Number of pages33
    JournalJournal of the European Economic Association
    Volume9
    Issue number2
    Early online date3 Feb 2011
    DOIs
    Publication statusPublished - Apr 2011

    Keywords

    • E52
    • E58
    • F41
    • INTERNATIONAL DIVERSIFICATION PUZZLE
    • EXTERNAL WEALTH
    • MONETARY-POLICY
    • FOREIGN-ASSETS
    • LIABILITIES
    • DYNAMICS
    • NATIONS

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