This paper analyzes optimal portfolio decisions in a monetary open-economy framework. It is found that market completeness and the specific form of nominal rigidities, namely, nominal price vs. nominal wage rigidities, matter for justifying the observed structure of equity holdings. When markets...

Is the relative price of investment goods a good proxy for investment specific technology? We model this relative price in a flexible price international economy with two fundamental shocks, namely, the total factor productivity (TFP) shock and the investment-specific technology (IST) shock. We...

The role of fiscal policy is examined when public goods provide both productive and utility services. In the presence of congestion, the consumption tax is shown to be distortionary. Optimal fiscal policy involves using consumption-based instruments in conjunction with the income tax. An income...

We study the effects of tax shocks on the budget and external deficits for 16 industrialized countries over the post-1970 period. Our structural approach is based on a small open economy model where a tax cut affects the external deficit by two distinct channels. The demographic channel works...

This paper shows that imperfect financial integration and informational asymmetries are not competing theories but rather complementary ideas to a single explanation of the home bias puzzle. We develop a rational expectations model of asset prices with investors that face informational...

In this paper we compare the diversification patterns of agents who maximize a generalized expected utility (GEU) with the diversification patterns of agents who follow the CAPM. We consider two identical countries with equity returns having the same mean and variance in terms of their domestic...

The money in utility model is reconsidered in the presence of endogenous labour and habits. With standard assumptions about preferences and a policy rule that sets the nominal interest rate by adjusting the growth rate of money, the model exhibits superneutrality in the steady state....

This paper presents evidence on the effects of economic liberalization of 1991 on the price responsiveness of aggregate private investment in India. The wide ranging reforms are expected to increase the price response of private investment due to (i) the Le Chatelier effect, (ii) a higher price...

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We investigate the impact of preference shocks on the aggregate dynamics of the U.S. economy in the context of a neoclassical growth model derived from aggregation. The aggregation result we use is as follows: if markets are complete and if agents have identical preferences of the addilog type,...