IMF Working Papers

Portfolio Choice in a Monetary Open-Economy DSGE Model

By Akito Matsumoto, Charles Engel

August 1, 2005

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Akito Matsumoto, and Charles Engel. Portfolio Choice in a Monetary Open-Economy DSGE Model, (USA: International Monetary Fund, 2005) accessed September 19, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper develops a two-country monetary DSGE (dynamic stochastic general equilibrium) model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some goods prices are set without full information of the state. Home and foreign portfolios are not identical in equilibrium. In response to technology shocks, sticky prices generate a negative correlation between labor income and the profits of domestic firms, biasing portfolios in favor of home equities. In contrast, under flexible prices, labor income and the profits of the domestic firms are positively correlated.

Subject: Consumption, Income, Labor, Sticky prices, Stocks

Keywords: Optimal portfolio, WP

Publication Details

  • Pages:

    43

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2005/165

  • Stock No:

    WPIEA2005165

  • ISBN:

    9781451861846

  • ISSN:

    1018-5941