Working Paper: CEPR ID: DP6208
Authors: Michael B. Devereux; Alan Sutherland
Abstract: This paper presents a general approximation method for characterizing time-varying equilibrium portfolios in a two-country dynamic general equilibrium model. The method can be easily adapted to most dynamic general equilibrium models, it applies to environments in which markets are complete or incomplete, and it can be used for models of any dimension. Moreover, the approximation provides simple, easily interpretable closed form solutions for the dynamics of equilibrium portfolios.
Keywords: country portfolios; solution methods
JEL Codes: E52; E58; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| method of approximation employed (C60) | equilibrium portfolios evolve over time (D53) |
| second-order approximation of the portfolio problem (C69) | characterization of portfolio dynamics (C69) |
| state variables influence the risk characteristics of assets (G19) | optimal portfolio choices (G11) |
| predictable movements in state variables (C32) | adjustments in the portfolio composition (G11) |