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Author: | Devereux, M.B. Sutherland, A. |
Title: | Country portfolios in open economy macro-models |
Journal: | Journal of the European Economic Association
2011 : APR, VOL. 9:2 p. 337-369 |
Index terms: | macroeconomics mathematical models equilibrium analysis stochastic processes assets economic conditions |
Freeterms: | approximation |
Language: | eng |
Abstract: | This paper outlines a simple approximation method for working out equilibrium portfolios in dynamic general equilibrium open economy macro-models. The method can be widely applied, is simple to implement, and gives analytical solutions for equilibrium portfolio positions containing any combination or type of asset. It is usable in models with any number of assets and in the cases of complete and incomplete markets. It can also be applied to any dimension of stochastic dynamic general equilibrium models, so long as the model is amenable to a solution achieved with standard approximation methods. We first demonstrate the approach with a simple two-asset endowment economy model, and then show how the results can be extended to the case of any number of assets and any general economic structure. |
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