Solving DSGE portfolio choice models with dispersed private information

Financial Integration and Macrofinancial Linkages in Asia:

“…Recent theoretical models employ richer environments, including a consideration of the role of financial variables and valuation effects in developing a better understanding of the linkages between exchange rates and real and financial aggregates (Tille 2008, Tille andvan Wincoop 2014). These studies find evidence that balance sheet and valuation effects appear to be important in driving exchange rates and, in turn, real variables.…”

Foreign Currency Bank Funding and Global Factors

“…Specifically, we rely on quadratic and cubic approximations. The solution requires keeping track of terms that are proportionnal to innovations (so-called "first order"), proportional to the square of innovations (so-called "second-order"), and so on, following Tille and van Wincoop [2014]. As the technical steps are complex, we leave them to Appendix A and instead focus on the underlying intuition.…”

“…Portfolio choice is driven by the volatility of shocks and the covariance across various variables, as well as changes in these moments. We follow the approach of Tille and van Wincoop [2014] and split variables across their components of various orders. Orders differ through their linkage to the shocks in the model.…”

Asset Prices and Macroeconomic Outcomes: A Survey

“…38 In particular, models have been developed to see how real linkages are impacted by capital flows and stocks and balance sheets valuation effects. These models (Tille (2008), Benigno (2009), Coeurdacier et al (2010 and Tille and van Wincoop (2014b)) allow for the exchange rate to influence the adjustment of current and capital accounts through two financial channels: (i) capital gains and losses on external assets and liabilities due to exchange rate movements; and (ii) portfolio adjustments (trading in securities).…”