nep-ifn 2018-10-01 papers

on International Finance

Issue of 2018‒10‒01
one paper chosen by
Vimal Balasubramaniam
University of Oxford

Gross Capital Flows and International Diversification By Hyunju Lee

Gross Capital Flows and International Diversification

By:	Hyunju Lee (University of Minnesota)
Abstract:	Gross capital flows, which arise from the changes in international investment positions, experienced a sudden collapse during the Great Recession in the United States and other advanced countries. This paper builds an open economy model of portfolio choice with two bonds and two non-tradable sectors. Equilibrium portfolios are long in domestic bonds and short in foreign bonds because the endogenous movements of real exchange rate make this portfolio a good hedge against non-tradable consumption risk. With a calibrated model, I find that the observed fluctuations in gross flows mitigated 4% of consumption drop during the Great Recession in the United States.
Date:	2018
URL:	http://d.repec.org/n?u=RePEc:red:sed018:51&r=ifn

This nep-ifn issue is ©2018 by Vimal Balasubramaniam. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.

General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.

NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.