Portfolio choice analysis in a multi-country macro model
Chenyue Hu
Journal of Economic Dynamics and Control, 2025, vol. 170, issue C
Abstract:
This paper examines portfolio choice in a dynamic stochastic general equilibrium model with trade and financial linkages across 43 countries. I conduct comparative statics analysis with this structural model to disentangle potential mechanisms of global financial allocation, including risk hedging, risk diversification, risk sharing, and financial friction. For asset home bias, the model predicts that risk hedging is less essential in a multi-country than in a two-country setting. For bilateral asset positions, the model implies that variations in financial friction and asset covariance are major determinants of observed cross-country portfolios. Meanwhile, bilateral financial linkages strongly covary with trade linkages across countries. Comparative statics suggests that this covariance is mainly driven by the high correlation of frictions across the two channels of globalization.
Keywords: Portfolio choice in DSGE framework; Asset home bias in open economy macro models; Macro implications of finance and trade (search for similar items in EconPapers)
JEL-codes: F30 F41 F62 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188924002136
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Portfolio choice analysis in a multi-country macro model (2025) 
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:eee:dyncon:v:170:y:2025:i:c:s0165188924002136
DOI: 10.1016/j.jedc.2024.105021
Access Statistics for this article
Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok
More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().