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Portfolio allocation and international risk sharing

Benigno, Gianluca and Kucuk, H. (2012) Portfolio allocation and international risk sharing. Canadian Journal of Economics, 45 (2). pp. 535-565. ISSN 1540-5982

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Abstract

We show that recent explanations of the consumption-real exchange rate anomaly that 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 with 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 that allows for news.

Item Type: Article
Official URL: http://www.blackwellpublishing.com/journal.asp?ref...
Additional Information: © 2012 Canadian Economics Association.
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: F - International Economics > F3 - International Finance > F31 - Foreign Exchange
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 17 May 2012 12:07
URL: http://eprints.lse.ac.uk/43692/

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