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Missing Risk Sharing from International Transmission through Product Quality and Variety

Author

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  • Masashige Hamano

    (Waseda University, Tokyo and CREA, Université du Luxembourg)

Abstract

This paper explores the role played by product quality and variety in interna- tional consumption risk sharing. Turnover in product quality and variety can cause a wealth effect. A reasonable Backus-Smith correlation is driven by the Harrod- Balassa-Samuelson mechanism based on heterogeneous firms. Using panel data, we test the prediction of the theoretical model and find a supportive evidence for a resolution to the Backus-Smith puzzle. The extent of \missing risk sharing" due to unobservable fluctuations in quality and the number of varieties is high in the data.

Suggested Citation

  • Masashige Hamano, 2017. "Missing Risk Sharing from International Transmission through Product Quality and Variety," DEM Discussion Paper Series 17-17, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:17-17
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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rate; consumption-real exchange rate anomaly; product quality; firm heterogeneity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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