Publication Date: October 1991
Portfolio theory has been an important component of open economy macroeconomic models. In those models, it is essential to distinguish among several categories of assets, both foreign and domestic, and to specify the demands and supplies. This framework has become increasingly relevant. Movements of capital across regional and national boundaries, and across currencies, have exploded in volume, thanks to the dismantling of currency and exchange controls and other ﬁnancial regulations and to revolutionary economies in technologies of communication and transactions. The globalization of ﬁnancial markets was stimulated by the floating exchange rate regime established in 1973.
Portfolio choice, open economy, capital mobility, exchange rate
JEL Classification Codes: G11, F41, F21, F31
See CFP: 840