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International risk sharing with heterogeneous firms

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  • Hamano, Masashige

Abstract

This paper explores international consumption risk sharing in an open economy macro model with firm heterogeneity and shows that firm entry and the self-selection of more efficient firms into exporting account for better international risk sharing. I show analytically that the conventional unconditional correlation between relative consumption and the real exchange rate is not a good metric for measuring international consumption risk sharing. World trade data covering more than two decades indicate that the extent of international risk sharing is underestimated.

Suggested Citation

  • Hamano, Masashige, 2022. "International risk sharing with heterogeneous firms," Journal of International Money and Finance, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:jimfin:v:120:y:2022:i:c:s0261560621001546
    DOI: 10.1016/j.jimonfin.2021.102503
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    More about this item

    Keywords

    Exchange rate; International risk sharing; Product quality; Firm heterogeneity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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