Portfolio allocation and international risk sharing

Gianluca Benigno and Hande Kucuk ()

Canadian Journal of Economics, 2012, vol. 45, issue 2, 535-565

Abstract: We show that recent explanations of the consumption-real exchange rate anomaly that rely on goods and financial market frictions are not robust to introducing just one additional international asset. When portfolios are selected optimally, international trade in two nominal bonds implies a consumption-real exchange rate correlation that is too high compared with the data even when there are many shocks. Monetary policy specification plays a potentially important role for the degree of risk sharing provided by nominal bonds, both in the benchmark model with only tradable and non-tradable sector supply shocks and also in the model that allows for news.

JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Portfolio Allocation and International Risk Sharing (2012)
Working Paper: Portfolio Allocation and International Risk Sharing (2011)
Working Paper: Portfolio allocation and international risk sharing (2011)
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