Working Paper: NBER ID: w14372
Authors: Michael B. Devereux; Alan Sutherland
Abstract: This paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro models. The method is widely applicable, simple to implement, and gives analytical solutions for equilibrium portfolio positions in any combination or types of asset. It can be used in models with any number of assets, whether markets are complete or incomplete, and can be applied to stochastic dynamic general equilibrium models of any dimension, so long as the model is amenable to a solution using standard approximation methods. We first illustrate the approach using a simple two-asset endowment economy model, and then show how the results extend to the case of any number of assets and general economic structure.
Keywords: Open Economy; Macroeconomics; Portfolio Choice
JEL Codes: F3; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Portfolio Composition (G11) | External Wealth Valuation (G19) |
| External Wealth Valuation (G19) | Current Accounts (F32) |
| Portfolio Composition (G11) | Economic Policy Considerations (F68) |
| Portfolio Composition (G11) | Wealth Redistributions (D31) |
| Portfolio Composition (G11) | Macroeconomic Outcomes (E19) |