In the data country portfolios are heavily biased toward domestic assets. Standard one-good international macro models predict that, due to the presence of non-diversifiable labor income risk, country portfolios should be heavily biased toward foreign assets; this discrepancy constitute the...

In this paper we demonstrate that different incomplete markets models yield qualitatively distinct predictions about how consumption growth responds to declines and increases in earnings. Markets are either exogenously incomplete in that households can only trade a risk-free bond, subject to a...