EconPapers    
Economics at your fingertips  
 

The Role of Portfolio Constraints in the International Propagation of Shocks

Anna Pavlova and Roberto Rigobon

The Review of Economic Studies, 2008, vol. 75, issue 4, 1215-1256

Abstract: We study the comovement among stock prices and exchange rates in a three-good, three-country, Centre-Periphery, dynamic equilibrium model in which the Centre's agents face portfolio constraints. We characterize equilibrium in closed form for a broad class of portfolio constraints, solving for stock prices, terms of trade, and portfolio holdings. We show that portfolio constraints generate wealth transfers between the Periphery countries and the Centre, which increase the comovement of the stock prices across the Periphery. We associate this excess comovement caused by portfolio constraints with the phenomenon known as contagion. The model generates predictions consistent with other important empirical results such as amplification and flight-to-quality effects. Copyright 2008, Wiley-Blackwell.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (112)

Downloads: (external link)
http://hdl.handle.net/10.1111/j.1467-937X.2008.00509.x (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Role of Portfolio Constraints in the International Propagation of Shocks (2008) Downloads
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:oup:restud:v:75:y:2008:i:4:p:1215-1256

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2025-03-19
Handle: RePEc:oup:restud:v:75:y:2008:i:4:p:1215-1256