Three of the most important recent facts in global macroeconomics - the sustained rise in the US current account deficit, the stubborn decline in long run real rates, and the rise in the share of US assets in global portfolio - appear as anomalies from the perspective of conventional wisdom and...

The paper proposes a unified framework to study the dynamics of net foreign assets and exchange rate movements. We show that deteriorations in a country's net exports or net foreign asset position have to be matched either by future net export growth (trade adjustment channel) or by future...

We explore the implications of a country's external constraint for the dynamics of net foreign assets, returns, and exchange rates. Deteriorations in external accounts imply future trade surpluses (trade channel) or excess returns on the net foreign portfolio (valuation channel). Using a new...

The paper proposes a unified framework to study the dynamics of net foreign assets and exchange rate movements. We show that deteriorations in a country's net exports or net foreign asset position have to be matched either by future net export growth (trade adjustment channel) or by future...

Recent models of international equity portfolios exhibit two potential weaknesses. First, the structure of equilibrium equity portfolios is determined by the correlation of equity returns with real exchange rates and non financial income; yet empirically domestic equities don’t appear to be a...

This paper presents a model of international portfolios with real exchange rate and non financial risks that accounts for observed levels of equity home bias. A key feature is that investors can trade equities as well as domestic and foreign real bonds. Bonds matter: in equilibrium, investors...

This paper presents a model of international portfolios with real exchange rate and non financial risks that accounts for observed levels of equity home bias. A key feature is that investors can trade equities as well as domestic and foreign real bonds. Bonds matter: in equilibrium, investors...

Recent models of international equity portfolios exhibit two potential weaknesses. First, the structure of equilibrium equity portfolios is determined by the correlation of equity returns with real exchange rates and non financial income; yet empirically domestic equities don’t appear to be a...

Recent models on international equity portfolios exhibit two potential caveats: 1) Portfolios are indeterminate in the presence of bonds denominated in different currencies; 2) Equity portfolios are highly sensitive to preference parameters. We show that the addition of an additional, even...