Ina Simonovska

Asset liquidity and international portfolio choice

We study optimal portfolio choice in a two-country model where assets represent claims on future consumption and facilitate trade in markets with imperfect credit. Assuming that foreign assets trade at a cost, agents hold relatively more domestic assets. Consequently, agents have larger claims to domestic over foreign consumption. Moreover, foreign assets turn over faster than domestic assets because the former have desirable liquidity properties, but represent inferior saving tools. Our mechanism offers an answer to a long-standing puzzle in international finance: a positive relationship between consumption and asset home bias coupled with higher turnover rates of foreign over domestic assets.

Business Cycle Accounting For Chile

We investigate sources of economic fluctuations in Chile during 1998-2007 within the framework of a standard neoclassical growth model with time-varying frictions (wedges). We analyze the relative importance of efficiency, labor, investment, and government/trade wedges for business cycles in Chile. The purpose of this exercise is twofold: (i) focus the policy discussion on the most important wedges in the economy; and (ii) identify which broad class of models would present fruitful avenues for further research. We find that different wedges have played different roles during our studied period, but that the efficiency and labor wedges have had the greatest impact. We also compare our results with existing studies on Argentina, Brazil, and Mexico.