Portfolio choice in a monetary open-economy DSGE model
By: prepared by Charles Engel and Akito Matsumoto.
Contributors: Matsumoto, Akito.; International Monetary Fund. Research Dept.
Series: IMF working paper -- WP/05/165
Publisher: International Monetary Fund, Research Dept.
Published: 2005
Place of publication: Washington, D.C
Language: eng
Number of pages: 42
Subjects: Portfolio management -- Econometric models.; Investment analysis -- Econometric models.; Equilibrium (Economics) -- Mathematical models.; Investments, Foreign -- Econometric models.
Description: 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.
Notes: "August 2005."

Includes bibliographical references (p. 39-42).

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