Home Bias and the Structure of International and Regional Business Cycles
University of Dortmund Economics Discussion Paper
35 Pages Posted: 1 Sep 2003
Date Written: May 2003
We estimate Shiller portfolio weights for OECD countries and US states. We find that the income of US federal states is derived to about 50 percent from own output, that of OECD countries to about 60 percent.This suggests that US states display considerable 'home bias at home' and that the international portfolio home bias may be relatively less severe than evidence based on models of optimal portfolio allocation would suggest. We relate the estimated portfolio weights to the structure of regional and international business cycles. In particular, we can reproduce the empirical evidence on inter-state and international income flows.
Keywords: Consumption Risk Sharing, International and regional business cycles, Capital flows, Home Bias, Non-stationary panel data
JEL Classification: C23, E21, F36
Suggested Citation: Suggested Citation