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The Role of Nonseparable Utility and Nontradeables in International Business Cycle and Portfolio Choice

The Role of Nonseparable Utility and Nontradeables in International Business Cycle and Portfolio Choice by Akito Matsumoto
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This paper analyzes the role of nonseparable utility and nontradables in business cycles and portfolio choice. I find that nonseparability in utility can change the portfolio choice significantly. Unlike previous results in literature, the optimal portfolio of the traded-good sector equities is no longer a well diversified portfolio and becomes sensitive to parameter values. As a result, the model often generates extreme home bias or anti-home bias portfolios implying that some frictions in asset markets, which prevent agents from holding these extreme portfolios, can explain the lack of international risk sharing.
International Monetary Fund; July 2007
32 pages; ISBN 9781452711775
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Title: The Role of Nonseparable Utility and Nontradeables in International Business Cycle and Portfolio Choice
Author: Akito Matsumoto
 
ISBNs
1451911807
9781451867275
9781451911800
9781452711775