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International Consumption Risk Sharing with Incomplete Goods and Asset Markets

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Author Info
Sven Blank

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Abstract

Perfect consumption risk sharing requires both, frictionless goods as well as frictionless financial market integration. This project aims at analyzing the consequences of both type of frictions for the allocation of risk across countries in a unified framework. To this end, the theoretical model by Ghironi and Melitz (2005) is extended to allow for trade in international equities. This setup incorporates impediments to international trade in goods and assets. Preliminary results indicate that both type of frictions matter for international consumption risk sharing.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.96138.de/diw_finess_04020.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Working Paper / FINESS with number 4.2.

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Length: 23 p.
Date of creation: 2009
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Handle: RePEc:diw:diwfin:diwfin04020

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Related research
Keywords: International portfolio choice; consumption risk sharing; trade frictions; financial market frictions;

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Find related papers by JEL classification:
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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  1. Backus, David K. & Smith, Gregor W., 1993. "Consumption and real exchange rates in dynamic economies with non-traded goods," Journal of International Economics, Elsevier, vol. 35(3-4), pages 297-316, November. [Downloadable!] (restricted)
  2. Olivier Blanchard, 2007. "Current Account Deficits in Rich Countries," Working Papers 200721, Faculty of economics, Department of Economics, revised Jun 2007. [Downloadable!]
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  3. Sorensen, Bent E. & Wu, Yi-Tsung & Yosha, Oved & Zhu, Yu, 2007. "Home bias and international risk sharing: Twin puzzles separated at birth," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 587-605, June. [Downloadable!] (restricted)
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  4. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Fabio Ghironi & Jaewoo Lee & Alessandro Rebucci, 2007. "The Valuation Channel of External Adjustment," NBER Working Papers 12937, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 865-915, August.
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  7. Kalemli-Ozcan, Sebnem & Sorensen, Bent E & Yosha, Oved, 2004. "Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe," CEPR Discussion Papers 4463, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Tille, Cedric, 2005. "The welfare effect of international asset market integration under nominal rigidities," Journal of International Economics, Elsevier, vol. 65(1), pages 221-247, January. [Downloadable!] (restricted)
  9. Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August. [Downloadable!] (restricted)
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  10. Cedric Tille & Eric van Wincoop, 2007. "International Capital Flows," Working Papers 122007, Hong Kong Institute for Monetary Research. [Downloadable!]
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  11. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, 04. [Downloadable!] (restricted)
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This page was last updated on 2009-11-2.

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