98103 hdl_2072_13171 oai:www.recercat.cat:2072/171817 This paper provides a new benchmark for the analysis of the international diversi…cation puzzle in a tractable new open economy macroeconomic model. Building on Cole and Obstfeld (1991) and Heathcote and Perri (2009), this model speci…es an equilibrium model of perfect risk sharing in incomplete markets, with endogenous portfolios and number of varieties. Equity home bias may not be a puzzle but a perfectly optimal allocation for hedging risk. In contrast to previous work, the model shows that: (i) optimal international portfolio diversi…cation is driven by home bias in capital goods, independently of home bias in consumption, and by the share of income accruing to labour. The model explains reasonably well the recent patterns of portfolio allocations in developed economies; and (ii) optimal portfolio shares are independent of market dynamics. eng Arespa, Marta Xarxa de Referència en Economia Aplicada (XREAP) Xarxa de Referència en Economia Aplicada (XREAP) 2011 A New open economy macroeconomic model with endogenous portfolio diversification and firms entry 41 p. Aquest document està subjecte a una llicència d'ús de Creative Commons, amb la qual es permet copiar, distribuir i comunicar públicament l'obra sempre que se'n citin l'autor original, la universitat i la xarxa i no se'n faci cap ús comercial ni obra derivada, tal com queda estipulat en la llicència d'ús http://creativecommons.org/licenses/by-nc-nd/2.5/es/ 33 Macroeconomics Economic theory Macroeconomia Teoria econòmica info:eu-repo/semantics/workingPaper XREAP ; 2011-15 http://ddd.uab.cat/pub/estudis/2011/hdl_2072_171817/XREAP2011-15.pdf 306424 41 Adreça alternativa http://hdl.handle.net/2072/171817 ESTUDIS UAB driver oai:ddd.uab.cat:98103