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International Risk Sharing During the Globalization Era

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Author Info
Akito Matsumoto
Robert P. Flood
Nancy P. Marion

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Abstract

Though theory suggests financial globalization should improve international risk sharing, empirical support has been limited. We develop a simple welfare-based measure that captures how far countries are from the ideal of perfect risk sharing. We then take it to data and find international risk sharing has, indeed, improved during globalization. Improved risk sharing comes mostly from the convergence in rates of consumption growth among countries rather than from synchronization of consumption at the business cycle frequency. Our finding explains why many existing measures fail to detect improved risk sharing-they focus only on risk sharing at the business cycle frequency.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/209.

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Length: 38 pages
Date of creation: 28 Sep 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/209

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Related research
Keywords: Business cycles ; Consumption ; Cross country analysis ; Economic growth ; Economic integration ; Economic models ; Globalization ; International trade ; Risk management ; Welfare ;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Oved Yosha, 2003. "Risk Sharing and Industrial Specialization: Regional and International Evidence," American Economic Review, American Economic Association, vol. 93(3), pages 903-918, June. [Downloadable!]
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  6. 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. [Downloadable!] (restricted)
  7. Artis, Michael J & Hoffmann, Mathias, 2007. "Declining Home Bias and the Increase in International Risk Sharing: Lessons from European Integration," CEPR Discussion Papers 6617, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Canova, Fabio & Ravn, Morten O, 1996. "International Consumption Risk Sharing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 573-601, August.
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  9. Michael R. Pakko, 1998. "Characterizing Cross-Country Consumption Correlations," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 169-174, February. [Downloadable!] (restricted)
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  10. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102. [Downloadable!] (restricted)
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  11. Becker, Sascha O. & Hoffmann, Mathias, 2006. "Intra- and international risk-sharing in the short run and the long run," European Economic Review, Elsevier, vol. 50(3), pages 777-806, April. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael B. Devereux & Gregor W. Smith & James Yetman, 2009. "Consumption and Real Exchange Rates in Professional Forecasts," NBER Working Papers 14795, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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