International equity and bond positions in a DSGE model with variety risk in consumption

Masashige Hamano

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: This paper analyzes equity and bond positions in a two-country DSGE model where the number of varieties, i.e. extensive margin is endogenously determined. Households take care about not only the price of goods but also the variety of goods they consume. The welfare-based real exchange rate fluctuations matter in inter- national consumption risk sharing. We investigate analytically and numerically the implication of "variety risk" induced by fluctuations in extensive margins. In nu- merical computation of zero-order steady state portfolios, we employ the Devereux and Sutherland method. We show that, with variety risk, home biased equity posi- tions are further amplified compared to those obtained with the standard model in the literature. The result is shown to be robust with or without firm heterogeneity in marginal costs of production.

Keywords: real exchange rate; home biased equity puzzle; firm entry; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: F12 F41 F43 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cmp and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://wwwfr.uni.lu/content/download/52328/627367/ ... in%20consumption.pdf (application/pdf)

Related works:
Journal Article: International equity and bond positions in a DSGE model with variety risk in consumption (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:12-05

Access Statistics for this paper

More papers in DEM Discussion Paper Series from Department of Economics at the University of Luxembourg Contact information at EDIRC.
Bibliographic data for series maintained by Marina Legrand ().