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Article: Studies from N. Coeurdacier and colleagues yield new information about international economics.
- Article from:
- Economics Week
- Article date:
- March 13, 2009
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According to a study from London, the United Kingdom, "Two of the main puzzles in international economics are the consumption and the portfolio home biases. We solve for international equity portfolios in a two-country/two-good stochastic equilibrium model with trade costs in goods markets."
"We show that introducing trade costs, as suggested by Obstfeld and Rogoff [Obstfeld, M., Rogoff, K., 2000a. The Six Major Puzzles in International Macroeconomics: Is There a Common Cause? NBER Macroeconomics Annual, 151, is not sufficient to explain these two puzzles simultaneously. On the contrary, we find that trade costs create a foreign bias in portfolios for reasonable ...