A Portfolio Theory of International Capital Flows (joint with Mick Devereux)

東京大学経済学研究科棟 3階 第3教室

Makoto Saito 氏(Hitotsubashi University)

This paper constructs a model in which the currency composition of national portfolios is an essential element in facilitating capital flows between countries. In a two country environment, each country chooses optimal nominal bond portfolios in face of real and nominal risk. Current account deficits are financed by increases in domestic currency debt, but balanced by increases in foreign currency credit. This is combined with an evolution of risk-premiums such that the rate of return on the debtor country’s gross liabilities is lower than the return on its gross assets. This ensures stability of the world wealth distribution.

Macroworkshop と共催

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