Citation

Discussion Paper Details

Please find the details for DP6705 in an easy to copy and paste format below:

Full Details | Bibliographic Reference

Full Details

Title: International Capital Flows

Author(s): C�dric Tille and Eric van Wincoop

Publication Date: February 2008

Keyword(s): home bias, international capital flows and portfolio allocation

Programme Area(s): International Macroeconomics

Abstract: The surge in international asset trade since the early 1990s has lead to renewed interest in models with international portfolio choice, an aspect that was largely cast aside when the ad-hoc portfolio balance models of the 1970s were replaced by models of optimizing agents. We develop the implications of portfolio choice for both gross and net international capital flows in the context of a simple two-country dynamic stochastic general equilibrium (DSGE) model. Our focus is on the time-variation in portfolio allocation following shocks, and the resulting capital flows. We show how endogenous time-variation in expected returns and risk, which are the key determinants of portfolio choice, affect capital flows in often subtle ways. The model is shown to be consistent with a broad range of empirical evidence. An additional contribution of the paper is to overcome the technical difficulty of solving DSGE models with portfolio choice by developing a broadly applicable solution method

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6705

Bibliographic Reference

Tille, C and van Wincoop, E. 2008. 'International Capital Flows'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6705