Abstract

http://ssrn.com/abstract=889084
 
 

Citations (36)



 


 



International Portfolio Equilibrium and the Current Account


Robert Kollmann


ECARES, Université Libre de Bruxelles; University of Paris XII - Department of Economics; Centre for Economic Policy Research (CEPR)

February 20, 2006


Abstract:     
This paper analyzes the determinants of international asset portfolios, using a neoclassical dynamic general equilibrium model with home bias in consumption. For plausible parameter values, the model explains the fact that typical investors hold most of their wealth in domestic assets (portfolio home bias). In the model, the current account balance (change in net foreign assets)is mainly driven by fluctuations in equity prices; the current account is predicted to be highly volatile and to exhibit low serial correlation; changes in a country's foreign equity assets and liabilities are predicted to be highly positively correlated. The paper constructs current account series that include external capital gains/losses, for 17 OECD economies. The behavior of the empirical series confirms the theoretical predictions.

Number of Pages in PDF File: 35

Keywords: International portfolio holdings, Dynamic General Equilibrium, Current Account, Consumption and portfolio home bias

JEL Classification: G1, F2, F3

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Date posted: March 8, 2006  

Suggested Citation

Kollmann, Robert, International Portfolio Equilibrium and the Current Account (February 20, 2006). Available at SSRN: http://ssrn.com/abstract=889084 or http://dx.doi.org/10.2139/ssrn.889084

Contact Information

Robert Kollmann (Contact Author)
ECARES, Université Libre de Bruxelles ( email )
Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
University of Paris XII - Department of Economics ( email )
61 avenue du General de Gaulle
Creteil cedex, 94010
France
HOME PAGE: http://www.robertkollmann.com
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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