International risk sharing [electronic resource] : through equity diversification or exchange rate hedging? / prepared by Charles Engel and Akito Matsumoto.
- [Washington D.C.] : International Monetary Fund, 2009.
- IMF working paper ; WP/09/138.
IMF working paper ; WP/09/138
- Government document
1 online resource (47 p.)
- Electronic books.
- Well-known empirical puzzles in international macroeconomics concern the large divergence of equilibrium outcomes for consumption across countries from the predictions of models with full risk sharing. It is commonly believed that these risk-sharing puzzles are related to another empirical puzzle-the home-bias in equity puzzle. However, we show in a series of dynamic models that the full risk sharing equilibrium may not require much diversification of equity portfolios when there is price stickiness of the degree typically calibrated in macroeconomic models. This conclusion holds under a range
- Contents; I. Introduction; II. A General Result in a Static Framework; III. A Dynamic Sticky-Price Model with Local-Currency Pricing; A. Household Problem; B. Firms; C. Equilibrium Portfolios under LCP and Flexible Wages; D. Equilibrium Portfolios under LCP and Sticky Wages; E. A Dynamic Sticky-Price Model with Producer-Currency Pricing; IV. Conclusion; Tables; 1. Optimal Portfolios under LCP, Flexible Wages; 2. Optimal Portfolios under LCP, Sticky Wages; 3. Optimal Portfolios under PCP, Flexible Wages; 4. Optimal Portfolios under PCP, Sticky Wages; References
- Description based upon print version of record.
Includes bibliographical references.
- Matsumoto, Akito.
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