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Home Bias in Open Economy Financial Macroeconomics
Journal of Economic Literature
Home bias is a perennial feature of international capital markets. We review various explanations of this puzzling phenomenon highlighting recent developments in macroeconomic modelling that incorporate international portfolio choices in standard two-country general equilibrium models. We refer to this new literature as Open Economy Financial Macroeconomics. We focus on three broad classes of explanations: (i) hedging motives in frictionless financial markets (real exchange rate anddoi:10.1257/jel.51.1.63 fatcat:jxmjmpeupfdafoskwtcmsp2m44