COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 991

"On the Internationalization of Portfolios"

William C. Brainard and James Tobin

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.

Keywords: Portfolio choice, open economy, capital mobility, exchange rate

JEL Classification: G11, F41, F21, F31