Consumption based measures of international risk sharing seem to defy the effects of more than two decades of ongoing financial globalization. We put forward an explanation of this puzzle: under incomplete risk sharing and if there are several sources of risk, consumption based measures of risk sharing will also be a function of the structure of business cycles, i.e. their degree of synchronization and persistence. We argue that permanent and transitory shocks to output constitute such qualitatively different sources of risk. Using OECD data, we then illustrate that countries have indeed become more insured against permanent shocks, in line with the ever better integration of financial markets. Basic measures of risk sharing have however not picked up this change because globalization has also affected the structure of business cycles. In particular, our results are consistent with the observation recently made by several authors that the globalization period has seen the emergence of less volatile and internationally more synchronized business cycles among industrialized countries.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4697.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Did you know? Each page is provided with a technical contact, in case something is not right with the supplied information. See under "publisher info".