Coeurdacier, Nicolas - Society for Economic Dynamics - SED - 2006
-country stochastic equilibrium model, I prove that introducing trade costs in goods market alone, as suggested by Obstfeld and Rogoff …, trade costs create a foreign bias in portfolios. To reconcile facts and theory, I introduce a combination of small frictions … in financial markets and trade costs in goods market. The interaction between the two types of frictions determines …