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Solving DSGE portfolio choice models with asymmetric countries

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  • Dlugoszek, Grzegorz R.

Abstract

This paper proposes a combination of bifurcation methods and nonlinear moving average as a tool to solve asymmetric DSGE models with portfolio choice. Its performance is compared to the workhorse routine developed by Devereux and Sutherland (2010, 2011). The proposed technique has two advantages. First, it captures the direct effect of uncertainty on portfolio holdings. Second, it reflects the presence of asymmetries by yielding risk adjusted asset positions that lie close to the ergodic mean of the global solution. In terms of Euler equation errors, the proposed method is shown to be on average at least as good as the standard approach.

Suggested Citation

  • Dlugoszek, Grzegorz R., 2016. "Solving DSGE portfolio choice models with asymmetric countries," SFB 649 Discussion Papers 2016-009, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2016-009
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    Cited by:

    1. Aquino, Juan Carlos, 2018. "The Valuation Channel of External Adjustment in Small Open Economies," Working Papers 2018-011, Banco Central de Reserva del Perú.

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    More about this item

    Keywords

    Country Portfolios; Solution Method; Asymmetric Countries;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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