Portfolio and welfare consequences of debt market dominance
Portfolio and welfare consequences of debt market dominance
The ability to issue debt that pays in units of the domestic good leads a country to accumulate a large and negative net foreign asset position while maintaining a positive position in equity. This debt market advantage also helps to explain the weak relationship between the real exchange rate and relative consumption. Our stylized model matches the key facts about the U.S. international portfolio, the U.S. real exchange rate, and explains nearly 50% of the observed variation in the valuation effects. We find that taxing bond market transactions increases the volatility of the exchange rate, capital flows and allocations. In contrast, taxing equity positions stabilizes the exchange rate and capital flows while having little impact on the allocation. Lastly, the paper describes a global solution method for portfolio problems under incomplete markets.
89-101
Stepanchuk, Serhiy
ab625a3a-3db4-411f-90a4-1a2d2f9a0b17
Tsyrennikov, Viktor
30fcb7be-8811-4565-af6c-e19200a0c159
September 2015
Stepanchuk, Serhiy
ab625a3a-3db4-411f-90a4-1a2d2f9a0b17
Tsyrennikov, Viktor
30fcb7be-8811-4565-af6c-e19200a0c159
Stepanchuk, Serhiy and Tsyrennikov, Viktor
(2015)
Portfolio and welfare consequences of debt market dominance.
Journal of Monetary Economics, 74, .
(doi:10.1016/j.jmoneco.2015.06.005).
Abstract
The ability to issue debt that pays in units of the domestic good leads a country to accumulate a large and negative net foreign asset position while maintaining a positive position in equity. This debt market advantage also helps to explain the weak relationship between the real exchange rate and relative consumption. Our stylized model matches the key facts about the U.S. international portfolio, the U.S. real exchange rate, and explains nearly 50% of the observed variation in the valuation effects. We find that taxing bond market transactions increases the volatility of the exchange rate, capital flows and allocations. In contrast, taxing equity positions stabilizes the exchange rate and capital flows while having little impact on the allocation. Lastly, the paper describes a global solution method for portfolio problems under incomplete markets.
Text
intl-portfolios.pdf
- Accepted Manuscript
More information
Accepted/In Press date: 16 June 2015
e-pub ahead of print date: 26 June 2015
Published date: September 2015
Organisations:
Economics
Identifiers
Local EPrints ID: 402801
URI: http://eprints.soton.ac.uk/id/eprint/402801
ISSN: 0304-3932
PURE UUID: d5b1e513-4a8c-40af-9ff9-1dfff4a3a875
Catalogue record
Date deposited: 15 Nov 2016 15:22
Last modified: 15 Mar 2024 06:04
Export record
Altmetrics
Contributors
Author:
Viktor Tsyrennikov
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics