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Channels of Interstate Risksharing : US 1963-1990

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Author Info

  • P. Asdrubali
  • Bent E. S�rensen
  • Oved Yosha

Abstract

We develop a framework for quantifying the amount of risksharing among states in the US, and construct data which allow us to decompose a shock to gross state product into several components. For the period 1963-1990 we find that 40% of shocks to state gross domestic product are smoothed by capital markets, 14% are smoothed by the federal government, and 24% are smoothed by credit markets. The remaining 22% are not smoothed. We decompose the federal government smoothing into sub-categories: taxes, transfers, and grants to states, finding, for example, that in comparision to the tax-transfer system, the magnitude of smoothing through the grant system is small (2.7% of a shock), and that the unemployment insurance system smoothes 1.8% of a shock. Finally, we repeat the analysis for two sub-periods, finding that the amount and composition of federal government smoothing is stable through time. However, we detect an increase in the amount of capital markets smoothing, a sharp decrease in the amount of credit market smoothing, and a decrease in the overall fraction of a shock smoothed.

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Bibliographic Info

Paper provided by Brown University, Department of Economics in its series Working Papers with number 95-13.

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Length: 27 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:bro:econwp:95-13

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Postal: Department of Economics, Brown University, Providence, RI 02912

Related research

Keywords: Risk; Capital markets;

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Cited by:
  1. Akito Matsumoto & Robert P. Flood & Nancy P. Marion, 2009. "International Risk Sharing During the Globalization Era," IMF Working Papers 09/209, International Monetary Fund.
  2. Tullio Jappelli & Marco Pagano, 2008. "Financial Market Integration Under EMU," CSEF Working Papers 197, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  3. Philip Lane, 1998. "International Diversification and the Irish Economy," Economics Technical Papers 9811, Trinity College Dublin, Department of Economics.
  4. Ridhwan, M.M. & Nijkamp, P. & Rietveld, P., 2008. "Regional development and monetary policy : a review of the role of monetary unions, capital mobility and locational effects," Serie Research Memoranda 0007, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  5. S. Bucovetsky, 1997. "Insurance and Incentive Effects of Transfers among Regions: Equity and Efficiency," International Tax and Public Finance, Springer, vol. 4(4), pages 463-483, November.

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