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The Feasible Gains from International Risk Sharing

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  • Sylvester Eijffinger
  • Wolf Wagner

Abstract

We argue that since there are several impediments to international risk sharing, the welfare gains from full international risk sharing, which have been the object of analysis in the previous literature, are not suggestive. Instead, we study the gains from feasible risk sharing and find that they are considerable (0:5% increase inpermanent consumption). Marginal benefits from further risk sharing are low, which indicates that feasible risk sharing can achieve most of the benefits from internationalrisk sharing. Surprisingly, we find that sharing short term consumption risk lowers welfare. On the basis of the results we make suggestions on how to improve existing international risk sharing systems.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2001/wp-cesifo-2001-05/cesifo_wp472.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 472.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_472

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Keywords: International risk sharing; welfare gains;

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  1. Maurice Obstfeld, 1995. "Evaluating Risky Consumption Paths: The Role of Intertemporal Substitutability," NBER Technical Working Papers 0120, National Bureau of Economic Research, Inc.
  2. Alvarez, F. & Jermann, U.J., 2000. "Using Asset Prices to Measure the Cost of Business Cycles," Weiss Center Working Papers, Wharton School - Weiss Center for International Financial Research 00-1, Wharton School - Weiss Center for International Financial Research.
  3. Stefano ATHANASOULIS & Eric VAN WINCOOP, 1997. "Growth Uncertainty And Risksharing," Economic Report, Iowa State University Department of Economics 41, Iowa State University Department of Economics.
  4. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(3), pages 519-43, June.
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Cited by:
  1. Elizabeth Asiedu & Yi Jin & Anne Villamil, 2006. "Do lack of transparency and enforcement undermine international risk-sharing?," Annals of Finance, Springer, Springer, vol. 2(2), pages 123-140, March.

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