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Trade Costs, Asset Market Frictions, and Risk Sharing

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  • Doireann Fitzgerald
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    Abstract

    I use bilateral import data to test for and quantify the importance of trade costs and asset market frictions in explaining the failure of perfect international consumption risk sharing. I find that while frictions in international asset markets significantly impede optimal consumption risk sharing between developed and developing countries over the period 1970-2000, developed countries are close to optimal risk sharing with each other. Trade costs, in contrast, significantly impede risk sharing for all countries. (JEL E21, E44, F14, F41, G15)

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.6.2700
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 102 (2012)
    Issue (Month): 6 (October)
    Pages: 2700-2733

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    Handle: RePEc:aea:aecrev:v:102:y:2012:i:6:p:2700-2733

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    Cited by:
    1. Jonathan Heathcote & Fabrizio Perri, 2013. "Assessing international efficiency," Staff Report 480, Federal Reserve Bank of Minneapolis.
    2. Julien Bengui & Enrique G. Mendoza & Vincenzo Quadrini, 2012. "Capital Mobility and International Sharing of Cyclical Risk," NBER Working Papers 18372, National Bureau of Economic Research, Inc.
    3. Buch, Claudia M. & Neugebauer, Katja & Schröder, Christoph, 2014. "Changing forces of gravity: How the crisis affected international banking," ZEW Discussion Papers 14-006, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Guglielmo Maria Caporale & Michael Donadelli & Alessia Varani, 2014. "International Capital Markets Structure, Preferences and Puzzles: The US-China Case," CESifo Working Paper Series 4669, CESifo Group Munich.

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