Handbook of Safeguarding Global Financial Stability

Chapter 13

Endogenous Portfolios in International Macro Models

M.B. Devereux* and A. Sutherland^†

^*University of British Columbia, Vancouver, BC, Canada

^†University of St Andrews, Fife, UK

Outline

Introduction

A Simple Example Model

General Properties of Approximate Solutions

Mathematical Foundations

Applications

Home Bias

Valuation Effects and Current Account Imbalances

Global Imbalances and Emerging Market Portfolios

Monetary Policy and Financial Globalization

Conclusion

Glossary

References

Financial globalization has resulted in large cross-border gross asset positions which have important implications for macroeconomic interactions between countries. Choices about portfolio allocation reflect patterns of shocks and the hedging properties ...