Portfolio Allocation and International Risk Sharing

Gianluca Benigno and Küçük, Hande
Authors registered in the RePEc Author Service: Hande Kucuk ()

No 8810, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that recent explanations of the consumption-real exchange rate anomaly which rely on goods and financial market frictions are not robust to introducing just one additional international asset. When portfolios are selected optimally, international trade in two nominal bonds implies a consumption-real exchange rate correlation that is too high compared to the data even when there are many shocks. Monetary policy specification plays a potentially important role for the degree of risk sharing provided by nominal bonds, both in the benchmark model with only tradable and non-tradable sector supply shocks and also in the model which allows for news or quality (i-pod) shocks.

Keywords: Consumption-real exchange rate anomaly; Incomplete financial markets; international risk sharing; Portfolio choice (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Portfolio allocation and international risk sharing (2012)
Journal Article: Portfolio allocation and international risk sharing (2012)
Working Paper: Portfolio Allocation and International Risk Sharing (2011)
Working Paper: Portfolio allocation and international risk sharing (2011)
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