Lowenkron, AlexandreDidier, Tatiana2012-03-192012-03-192009-03-01https://hdl.handle.net/10986/4057The current account can be understood as the outcome of investment decisions made by domestic and foreign investors. These decisions can be decomposed into a portfolio rebalancing and a portfolio growth component. This paper provides empirical evidence of the importance of portfolio rebalancing for the dynamics of the current account. The authors evaluate the predictions of a partial-equilibrium model of the current account with dynamic portfolio choices, in which portfolio rebalancing is driven by changes in investment opportunities. Using data for the United States and Japan, the authors find evidence supporting innovations in investment opportunities as an important mechanism to explain international capital flows.CC BY 3.0 IGOACCOUNTINGACTUAL VALUESADJUSTMENT COSTSAFFILIATED ORGANIZATIONSALLOCATION MODELSASSET CLASSASSET CLASSESASSET POSITIONASSET POSITIONSAUTOREGRESSIONBANKRUPTCYBENCHMARKBINDING CONSTRAINTSBOND RETURNSBOND YIELDBUDGET CONSTRAINTBUSINESS CYCLESCAPITAL FLOWSCOMMON CURRENCYCONSTANT MATURITYCONSTRAINTS ON INVESTORSCONSUMPTION DECISIONCONSUMPTION DECISIONSCONSUMPTION VOLATILITYCONTROL VARIABLESCORRELATION COEFFICIENTCREDITORCURRENCYCURRENT ACCOUNTCURRENT ACCOUNT BALANCECURRENT ACCOUNT BALANCESCURRENT ACCOUNT DEFICITCURRENT ACCOUNT DYNAMICSCURRENT ACCOUNT IMBALANCESCURRENT ACCOUNT RESPONSECURRENT ACCOUNT SURPLUSCURRENT ACCOUNTSDATA AVAILABILITYDEBTORDEPENDENT VARIABLEDEVELOPING COUNTRIESDISCOUNT RATEDIVIDENDDIVIDEND YIELDSDOMESTIC CAPITALDOMESTIC INVESTORDOMESTIC INVESTORSDOMESTIC SAVINGSECONOMETRIC ANALYSISECONOMETRICSECONOMIC RESEARCHECONOMIC THEORYELASTICITYEQUATIONSEQUILIBRIUMEQUITIESEQUITY MARKETSEXCESS RETURNSEXCHANGE RATESEXPECTED RETURNSEXPOSUREEXTERNAL POSITIONSFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL ASSETFINANCIAL ASSETSFINANCIAL CONSTRAINTSFINANCIAL INTEGRATIONFINANCIAL STABILITYFINANCIAL STATEMENTSFINANCIAL STUDIESFLOW OF FUNDSFOREIGN ASSETFOREIGN ASSET POSITIONFOREIGN ASSET POSITIONSFOREIGN ASSETSFOREIGN EQUITYFOREIGN HOLDERSFOREIGN HOLDINGSFOREIGN INVESTMENTSFOREIGN INVESTORSFOREIGN PORTFOLIOFOREIGN PORTFOLIO INVESTORSFOREIGN SECURITIESFREE CAPITALFUTURE DIVIDENDSFUTURE RESEARCHGDPGENERAL EQUILIBRIUMGENERAL EQUILIBRIUM MODELGLOBAL IMBALANCESGNPGOVERNMENT BONDGOVERNMENT BONDSHIGH-INCOME COUNTRIESHOLDINGSHOME COUNTRYINCOMEINCOME LEVELSINCOME SHOCKINCOMPLETE MARKETSINFLATIONINFLATION RATESINFLATION RISKINSTITUTIONAL INVESTORSINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL CAPITAL FLOWSINTERNATIONAL FINANCEINTERNATIONAL FINANCIAL STATISTICSINTERNATIONAL INVESTMENTINVESTINGINVESTMENT DECISIONSINVESTMENT HORIZONSINVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITYLEVEL OF RISKLEVERAGELOCAL CURRENCYLONG-TERM INVESTMENTLONG-TERM INVESTORSLOW-INCOME COUNTRIESMACROECONOMIC MODELSMACROECONOMIC POLICIESMARGINAL UTILITYMARKET CAPITALIZATIONMONETARY FUNDNATIONAL SAVINGSNET CAPITALNET FOREIGN ASSETSNOMINAL EXCHANGE RATENOMINAL YIELDNOMINAL YIELDSOPPORTUNITY SETOPTIMAL ALLOCATIONOPTIMAL CONSUMPTION PATHOPTIMAL PORTFOLIOOPTIMAL PORTFOLIOSPARTIAL EQUILIBRIUM ANALYSISPOLITICAL ECONOMYPORTFOLIOPORTFOLIO ALLOCATIONPORTFOLIO ALLOCATIONSPORTFOLIO CHOICEPORTFOLIO CHOICESPORTFOLIO COMPOSITIONPORTFOLIO GROWTHPORTFOLIO HOLDINGSPORTFOLIO INVESTMENTSPORTFOLIO RETURNPORTFOLIO RETURNSPORTFOLIOSPOSITIVE COEFFICIENTPOWER PARITYPRICE RATIOPURCHASING POWERPURCHASING POWER PARITYREAL ASSETREAL EXCHANGE RATEREAL EXCHANGE RATESREGRESSION ANALYSISRETURNRETURN ON FOREIGN ASSETRETURNSRISK AVERSERISK AVERSE INVESTORSRISK AVERSIONRISK MANAGEMENTROESAVINGS RATESECURITIESSHORT SALESSHORT-TERM BONDSHORT-TERM BONDSSHORT-TERM INSTRUMENTSHORT-TERM INTEREST RATESSHORT-TERM YIELDSTANDARD DEVIATIONSTANDARD DEVIATIONSSTOCK EXCHANGESTOCK MARKETSSTOCK RETURNSTOCK RETURNSSTOCKST-BILLT-BILLSTOTAL MARKETTOTAL MARKET CAPITALIZATIONTRANSACTIONTRANSACTION COSTSTREASURYTURNOVERUNCERTAINTYUTILITY FUNCTIONUTILITY FUNCTIONSVENTURE CAPITALISTVOLATILE CAPITALVOLATILITYVOLATILITY OF CAPITALWEALTHWEIGHTSWORLD ECONOMYWORLD PRICEWorld Bank10.1596/1813-9450-4861