The Role of Nonseparable Utility and Nontradeables in International Business Cycles and Portfolio Choice

Author/Editor:

Akito Matsumoto

Publication Date:

July 1, 2007

Electronic Access:

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Summary:

This paper analyzes the role of nonseparable utility and nontradables in business cycles and portfolio choice. I find that nonseparability in utility can change the portfolio choice significantly. Unlike previous results in literature, the optimal portfolio of the traded-good sector equities is no longer a well diversified portfolio and becomes sensitive to parameter values. As a result, the model often generates extreme home bias or anti-home bias portfolios implying that some frictions in asset markets, which prevent agents from holding these extreme portfolios, can explain the lack of international risk sharing.

Series:

Working Paper No. 2007/163

Subject:

Asset allocation Consumption Productivity Real exchange rates Stocks

English

Publication Date:

July 1, 2007

ISBN/ISSN:

9781451867275/1018-5941

Stock No:

WPIEA2007163

Pages:

32

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