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Debt Crises and Risk Sharing: The Role of Markets versus Sovereigns

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  • Kalemli-Ozcan, Sebnem
  • Luttini, Emiliano
  • Sørensen, Bent E

Abstract

Using a variance decomposition of shocks to GDP, we quantify the role of international factor income, international transfers, and saving in achieving risk sharing during the recent European crisis. We focus on the sub-periods 1990--2007, 2008--2009, and 2010 and consider separately the European countries hit by the sovereign debt crisis in 2010. We decompose risk sharing from saving into contributions from government and private saving and show that fiscal austerity programs played an important role in hindering risk sharing during the sovereign debt crisis.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9541.

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Date of creation: Jul 2013
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Handle: RePEc:cpr:ceprdp:9541

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Keywords: Capital Markets; Income Insurance; International Financial Integration;

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  1. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 1999. "What Drives Private Saving Across the World?," Working Papers Central Bank of Chile 47, Central Bank of Chile.
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  4. Asdrubali, Pierfederico & Sorensen, Bent E & Yosha, Oved, 1996. "Channels of Interstate Risk Sharing: United States 1963-1990," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1081-1110, November.
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  9. Huizinga,Harry & Jonung,Lars (ed.), 2005. "The Internationalisation of Asset Ownership in Europe," Cambridge Books, Cambridge University Press, number 9780521852951, October.
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  11. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 267-97, April.
  12. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
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