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Consumption risk sharing and adjustment costs

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  • Fanelli, Luca
  • Cavaliere, Giuseppe
  • Gardini, Attilio

Abstract

We show that full risk sharing may not be at odd with the idea that changes in regional consumption display error-correcting dynamics, in line with the idea that information and transaction costs stemming from interregional portfolio diversification and labor movements induced by permanent income shocks may delay the adjustment process. Using Italian data over the period 1960-2001 it is found that regional per capita consumptions match the proposed error-correcting structure.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1641.

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Date of creation: Oct 2004
Date of revision: Nov 2006
Handle: RePEc:pra:mprapa:1641

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Keywords: Consumption risk sharing; Adjustment costs; Forward-looking behavior;

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  1. Kollmann, R., 1992. "Consumption, Real Exchange Rates and the Structure of International Asset Markets," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9232, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
  3. Jeffrey C. Fuhrer & Michael W. Klein, 2006. "Risky Habits: on Risk Sharing, Habit Formation, and the Interpretation of International Consumption Correlations," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 722-740, 09.
  4. Fabio Canova & Morten O. Ravn, 1993. "International consumption risk sharing," Economics Working Papers 135, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 1995.
  5. Binder,M. & Pesaran,H.M., 1995. "Multivariate Rational Expectations Models and Macroeconomic Modelling: A Review and Some New Results," Cambridge Working Papers in Economics 9415, Faculty of Economics, University of Cambridge.
  6. Ravn, Morten O., 2001. "Consumption Dynamics and Real Exchange Rate," CEPR Discussion Papers 2940, C.E.P.R. Discussion Papers.
  7. Luca Fanelli, 2006. "Dynamic adjustment cost models with forward-looking behaviour," Econometrics Journal, Royal Economic Society, vol. 9(1), pages 23-47, 03.
  8. Giuseppe Cavaliere & Luca Fanelli & Attilio Gardini, 2006. "International dynamic risk sharing," Quaderni di Dipartimento 1, Department of Statistics, University of Bologna.
  9. Attfield, C. L. F., 1995. "A Bartlett adjustment to the likelihood ratio test for a system of equations," Journal of Econometrics, Elsevier, Elsevier, vol. 66(1-2), pages 207-223.
  10. Maurice Obstfeld., 1993. "Are Industrial-Country Consumption Risks Globally Diversified?," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C93-014, University of California at Berkeley.
  11. Cavaliere, Giuseppe & Fanelli, Luca & Gardini, Attilio, 2006. "Regional consumption dynamics and risk sharing in Italy," International Review of Economics & Finance, Elsevier, vol. 15(4), pages 525-542.
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Cited by:
  1. Attilio Gardini & Giuseppe Cavaliere & Luca Fanelli, 2006. "Risk sharing, avversione al rischio e stabilizzazione delle economie regionali in Italia," Quaderni di Dipartimento 0, Department of Statistics, University of Bologna.

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