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Risk Sharing of Disaggregate Macroeconomic and Idiosyncratic Shocks

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Author Info

  • Hess, G.D.
  • Shin, K.

Abstract

We estimate the extent to which idiosyncratic and disaggregate macro shocks (such as regional and industry shocks) are not shared in the economy. Comparing the degree to which idiosyncratic and disaggregate macro shocks are not shared grants a deeper understanding as to why the economy lacks in specific areas of risk sharing arrangements. As well, it can point to areas where the economy's risk sharing capability can be enhanced. Using household data from the Panel Study of Income Dynamics, we find that a negligible amount of risk (around 10%) is shared in the aggregate, about 50% is shared within regions and industries, while the remaining 40% is not shared with other households. These findings suggest that given the low level of international risk sharing, increased international integration may not lead to a significant increase in international risk sharing.

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Bibliographic Info

Paper provided by London School of Economics - Centre for Labour Economics in its series Papers with number 9915.

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Length: 38 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:lseple:9915

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Postal: LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE, CENTER FOR LABOUR ECONOMICS, HOUGHTON STREET LONDON WC2A 2AE ENGLAND.
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/
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Keywords: SAVINGS ; RISK ; MACROECONOMICS;

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Cited by:
  1. Gregory D. Hess & Kwanho Shin, 1997. "Risk sharing by households within and across regions and industries," Research Working Paper 97-07, Federal Reserve Bank of Kansas City.
  2. Gregory D. Hess, 2004. "Marriage and Consumption Insurance: What's Love Got to Do with It?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 290-318, April.
  3. Ralph Chami & Gregory Hess, 2005. "For Better or For Worse? State-Level Marital Formation and Risk Sharing," Review of Economics of the Household, Springer, vol. 3(4), pages 367-385, December.

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