These papers consider pure-exchange economies in which a
representative agent in each country has log-linear preferences. In recent years the literature
has made progress extending the setup beyond log-linear preferences—Coeurdacier (2005)
to the logarithm of a CES aggregator and Stathopoulos (2008) to preferences with habit formation.3
The solution is especially simple in complete markets—and we discuss this solution
in detail in Section 2—but it is also possible to introduce market frictions (Schornick (2007),
Pavlova and Rigobon (2008), and Pavlova and Rigobon (2010)).