Portfolio and welfare consequences of debt market dominance

@inproceedings{Stepanchuk2015PortfolioAW,
  title={Portfolio and welfare consequences of debt market dominance},
  author={Serhiy Stepanchuk and Viktor Tsyrennikov},
  year={2015}
}
The ability to issue debt that pays in units of the domestic good leads a country to accumulate a large and negative net foreign asset position while maintaining a positive position in equity. This debt market advantage also helps to explain the weak relationship between the real exchange rate and relative consumption. Our stylized model matches the key facts about the U.S. international portfolio, the U.S. real exchange rate, and explains nearly 50% of the observed variation in the valuation… CONTINUE READING

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