The Spirit of Capitalism and International Risk Sharing
AbstractWe show that a model of the spirit of capitalism can generate a high degree of international risk sharing as measured by the discount-factor-based approach of Brandt, Cochrane, and Santa-Clara (2001), even when consumption and portfolio holdings exhibit "home bias". We also show how portfolio externalities can arise in the model, and highlight the caution that one needs in interpreting discount-factor-based measures of international risk sharing: in the presence of portfolio externalities, even when the measured degree of risk sharing is perfect, it is still possible for government policies to induce investors to hold better-diversified portfolios and attain higher welfare
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 589.
Date of creation: 11 Aug 2004
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The spirit of capitalism; International risk sharing; Discount factor; Portfolio externality.;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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