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International Production Chains and Portfolio Diversification - Joseph Steinberg

Date & Time:
March 20, 2015 | 3:00 pm - 4:30 pm
Location:
SS423
Speaker:
Joseph Steinberg, University of Toronto

ABSTRACT: 

International production chains have become more fragmented in recent decades, increasing domestic firms’ exposure to foreign shocks. I build an international business cycle model with inter-country input-output linkages and equity trade to assess the quantitative implications of production fragmentation for international portfolio diversification. I calibrate the model to data from the World Input Output Database (WIOD) and extend the solution method proposed by Devereux and Sutherland (2011) to my many-country environment to solve for equilibrium portfolios. The model accounts for 26.4% of the observed increase in portfolio diversification between 1995 and 2011 in the United States, and 87.4% of the observed increase in the median non-U.S. advanced economy. The model is also consistent with the smaller increases in diversification in emerging economies.

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