Portfolio Choice in a Monetary Open-Economy DSGE Model

August 1, 2005

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Format: Chicago

Akito Matsumoto, and Charles Engel. Portfolio Choice in a Monetary Open-Economy DSGE Model, (USA: International Monetary Fund, 2005) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper develops a two-country monetary DSGE (dynamic stochastic general equilibrium) model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some goods prices are set without full information of the state. Home and foreign portfolios are not identical in equilibrium. In response to technology shocks, sticky prices generate a negative correlation between labor income and the profits of domestic firms, biasing portfolios in favor of home equities. In contrast, under flexible prices, labor income and the profits of the domestic firms are positively correlated.

Subject: Consumption, Income, Labor, Sticky prices, Stocks

Keywords: Optimal portfolio, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/165
Stock No:

WPIEA2005165
ISBN:

9781451861846
ISSN:

1018-5941

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