International risk sharing and commodity prices
AbstractCole and Obstfeld (1991) exposited a classic result where equilibrium movements in the terms of trade could make ex ante risk-sharing arrangements unnecessary: a unity elasticity of substitution across goods and production specialization. This paper extends their model to N countries and M commodities (N > M). Here the terms of trade provides insurance against commodity-specific shocks, not country-specific shocks. Using commodity-level production data at the national level and world commodity prices we document significant terms of trade variability and positive responses of nation-specific production to terms of trade improvements. The endogenous terms of trade insurance mechanism highlighted in CO is virtually non-existent.
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Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2011-34.
Length: 51 pages
Date of creation: Oct 2011
Date of revision:
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Other versions of this item:
- Martin Berka & Mario J. Crucini & Chih-Wei Wang, 2011. "International Risk-Sharing and Commodity Prices," Vanderbilt University Department of Economics Working Papers 1121, Vanderbilt University Department of Economics.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
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