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International portfolio diversification and endogenous labor supply choice |
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| Authors: | Urban J Jermann |
| Affiliation: | a Research Department, Federal Reserve Bank of Minneapolis, 90 Hennepin Avenue, Minneapolis, MN 55480-0291, USA b Finance Department, Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia, PA 19104, USA c National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, MA 02138, USA |
| Abstract: | This paper presents a multi-country general equilibrium model driven by productivity shocks, where labor supply and consumption are chosen endogenously. We use this framework to study the effect of labor supply for optimal international diversification. We find that the model's ability to help explain home-bias depends crucially on the level of substitutability between consumption and non-working time. Quantitatively, the non-separability in the preferences helps in a nonnegligible way, but it cannot entirely explain the extreme degree of home-bias in U.S. portfolios. |
| Keywords: | F30 G11 |
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