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Consumption Risk-Sharing within Australia and with New Zealand

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  • DAVID KIM
  • JEFFREY SHEEN

Abstract

We quantify how output risks are smoothed within Australia, and between Australia and New Zealand. About 90 per cent of shocks were smoothed within Australia through credit and capital markets, with fiscal policy a source of dis-smoothing after 1992. Risk-sharing between Australia and New Zealand was greater than within Europe, occurring mostly through credit markets. Fully integrated financial markets between Australia and New Zealand before 1983 would have yielded a welfare gain of 8.9 per cent of certainty-equivalent consumption for New Zealand, but a loss of 1.7 per cent for Australia. These gains (losses) were largely resolved by the deregulations and trade agreement of the early 1980s. Copyright © 2007 The Economic Society of Australia.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 83 (2007)
Issue (Month): 260 (03)
Pages: 46-59

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Handle: RePEc:bla:ecorec:v:83:y:2007:i:260:p:46-59

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  1. Mélitz, Jacques & Zumer, Frédéric, 1999. "Interregional and International Risk Sharing and Lessons for EMU," CEPR Discussion Papers 2154, C.E.P.R. Discussion Papers.
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  4. Bayoumi, Tamim, 1999. "International risk-sharing and lessons for EMU : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 189-193, December.
  5. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  6. Alan C. Stockman & Linda L. Tesar, 1991. "Tastes and technology in a two-country model of the business cycle: explaining international co-movements," Working Paper 9019, Federal Reserve Bank of Cleveland.
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  8. Stefano G. Athanasoulis & Robert J. Shiller, 1999. "World Income Components: Measuring and Exploiting Risk-Sharing Opportunities," Cowles Foundation Discussion Papers 1239, Cowles Foundation for Research in Economics, Yale University.
  9. Marianne Baxter & Mario J. Crucini, 1994. "Business Cycles and the Asset Structure of Foreign Trade," NBER Working Papers 4975, National Bureau of Economic Research, Inc.
  10. Karen K. Lewis, 1998. "International Home Bias in International Finance and Business Cycles," NBER Working Papers 6351, National Bureau of Economic Research, Inc.
  11. Bent E. Sørensen & Oved Yosha, 1998. "International Risk Sharing and European Monetary Unification," Temi di discussione (Economic working papers) 327, Bank of Italy, Economic Research and International Relations Area.
  12. Viv Hall & Kunhong Kim & Robert Buckle, 1998. "Pacific rim business cycle analysis: Synchronisation and volatility," New Zealand Economic Papers, Taylor & Francis Journals, vol. 32(2), pages 129-159.
  13. Athanasoulis, Stefano G. & van Wincoop, Eric, 2000. "Growth uncertainty and risksharing," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 477-505, June.
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Cited by:
  1. Barbara Pfeffer, 2008. "Do regional Trade and Specialization drive intra-regional Risk-Sharing?," MAGKS Papers on Economics 200813, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Balli, Faruk & Balli, Hatice O., 2011. "Income and consumption smoothing and welfare gains across Pacific Island Countries: The role of remittances and foreign aid," Economic Modelling, Elsevier, vol. 28(4), pages 1642-1649, July.
  3. Faruk Balli & Faisal Rana, 2014. "Determinants of risk sharing through remittances: cross-country evidence," CAMA Working Papers 2014-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Kim, David, 2007. "An East Asian currency union?: The empirical nature of macroeconomic shocks in East Asia," Journal of Asian Economics, Elsevier, vol. 18(6), pages 847-866, December.

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