Advanced Search
MyIDEAS: Login to save this paper or follow this series

International Income Risk-Sharing and the Global Financial Crisis of 2008--2009

Contents:

Author Info

  • Balli, Faruk
  • Basher, Syed Abul
  • Balli, Hatice Ozer

Abstract

We examine the impact of the global financial crisis on the degree of international income and consumption risk-sharing among industrial economies using returns on cross-border portfolio holdings (e.g., debt, equity, fdi). We split the returns from the net foreign holdings as receipts (inflows) and payments (outflows) to investigate which of the two sides exhibited the greater resilience for income risk-sharing during the recent crisis. First, we find that debt delivered better risk-sharing than equity, mainly reflecting the deficit deterioration in EMU countries during the post-crisis period. FDI, by contrast, did not correspond to noticeable risk diversification. Second, separating output shocks into positive and negative components reveals that debt holding receipts (equity liability payments) performed better under negative (positive) realizations of the shock variable. Third, the unwinding of capital flows resulted in a sharp fall in income dis-smoothing via the debt liability channel in the new EU countries.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/43720/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43720.

as in new window
Length:
Date of creation: 12 Jan 2013
Date of revision:
Handle: RePEc:pra:mprapa:43720

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Financial crisis; international portfolio diversification; income smoothing;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2011. "The real effects of debt," BIS Working Papers, Bank for International Settlements 352, Bank for International Settlements.
  2. Michael Artis & Massimiliano Marcellino & Tommaso Proietti, 2004. "Characterising the Business Cycle for Accession Countries," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 261, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Christos S. Savva & Kyriakos C. Neanidis & Denise R. Osborn, 2010. "Business cycle synchronization of the euro area with the new and negotiating member countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 15(3), pages 288-306.
  4. Paolo Tasca & Stefano Battiston, . "Diversification and Financial Stability," Working Papers, ETH Zurich, Chair of Systems Design CCSS-11-001, ETH Zurich, Chair of Systems Design.
  5. Zsolt Darvas & György Szapáry, 2006. "Business Cycle Synchronization in the Enlarged EU," Working Papers, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest 0604, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  6. Ibragimov, Rustam & Jaffee, Dwight & Walden, Johan, 2011. "Diversification disasters," Journal of Financial Economics, Elsevier, Elsevier, vol. 99(2), pages 333-348, February.
  7. Lojsch, Dagmar Hartwig & Rodríguez-Vives, Marta & Slavík, Michal, 2011. "The size and composition of government debt in the euro area," Occasional Paper Series, European Central Bank 132, European Central Bank.
  8. Balli, Faruk & Basher, Syed Abul & Ozer-Balli, Hatice, 2010. "From home bias to Euro bias: Disentangling the effects of monetary union on the European financial markets," Journal of Economics and Business, Elsevier, Elsevier, vol. 62(5), pages 347-366, September.
  9. Marco Terrones & M. Ayhan Kose & Eswar Prasad, 2007. "How Does Financial Globalization Affect Risk Sharing? Patterns and Channels," IMF Working Papers, International Monetary Fund 07/238, International Monetary Fund.
  10. Sorensen, B-E & Yosha, O, 1996. "International Risk Sharing and European Monetary Unification," Papers, Tel Aviv 40-96, Tel Aviv.
  11. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Eleonora Pierucci & Luigi Ventura, 2010. "Risk Sharing: A Long Run Issue?," Open Economies Review, Springer, Springer, vol. 21(5), pages 705-730, November.
  13. Balli, Faruk & Basher, Syed Abul & Balli, Hatice Ozer, 2011. "Income insurance and the determinants of income insurance via foreign asset revenues and foreign liability payments," Economic Modelling, Elsevier, Elsevier, vol. 28(5), pages 2296-2306, September.
  14. Anton Jevcak & Ralph Setzer & Massimo Suardi, 2010. "Determinants of Capital Flows to the New EU Member States Before and During the Financial Crisis," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 425, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  15. Faruk Balli & Sebnem Kalemli-Ozcan & Bent Sorensen, 2011. "Risk Sharing through Capital Gains," NBER Working Papers, National Bureau of Economic Research, Inc 17612, National Bureau of Economic Research, Inc.
  16. Fratzscher, Marcel & Imbs, Jean, 2009. "Risk sharing, finance, and institutions in international portfolios," Journal of Financial Economics, Elsevier, Elsevier, vol. 94(3), pages 428-447, December.
  17. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series, European Central Bank 14, European Central Bank.
  18. Afonso, António & Furceri, Davide, 2007. "Business cycle synchronization and insurance mechanisms in the EU," Working Paper Series, European Central Bank 0844, European Central Bank.
  19. Vincenzo Quadrini & Enrique G. Mendoza, 2010. "Financial Globalization, Financial Crises and Contagion," 2010 Meeting Papers, Society for Economic Dynamics 841, Society for Economic Dynamics.
  20. Sorensen, Bent E & Wu, Yi-Tsung & Yosha, Oved & Zhu, Yu, 2005. "Home Bias and International Risk Sharing: Twin Puzzles Separated at Birth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5113, C.E.P.R. Discussion Papers.
  21. Vermeulen, Robert, 2013. "International diversification during the financial crisis: A blessing for equity investors?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 35(C), pages 104-123.
  22. Martin Kahanec & Klaus F. Zimmermann, 2008. "Migration in an Enlarged EU: A Challenging Solution?," Discussion Papers of DIW Berlin, DIW Berlin, German Institute for Economic Research 849, DIW Berlin, German Institute for Economic Research.
  23. Thierry Bracke & Martin Schmitz, 2011. "Channels of international risk-sharing: capital gains versus income flows," International Economics and Economic Policy, Springer, Springer, vol. 8(1), pages 45-78, April.
  24. Bent E. Sørensen & Oved Yosha, 1998. "International Risk Sharing and European Monetary Unification," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 327, Bank of Italy, Economic Research and International Relations Area.
  25. Beine, Michel & Cosma, Antonio & Vermeulen, Robert, 2010. "The dark side of global integration: Increasing tail dependence," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(1), pages 184-192, January.
  26. Michael Davies & Tim Ng, 2011. "The rise of sovereign credit risk: implications for financial stability," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, September.
  27. Peter Christoffersen & Vihang Errunza & Kris Jacobs & Hugues Langlois, 2012. "Is the Potential for International Diversi?cation Disappearing? A Dynamic Copula Approach," CREATES Research Papers, School of Economics and Management, University of Aarhus 2012-48, School of Economics and Management, University of Aarhus.
  28. Balli, Faruk, 2008. "Spillover Effects on Government Bond Yields in Euro Zone. Does Full Financial Integration Exist in European Government Bond Markets?," MPRA Paper, University Library of Munich, Germany 10162, University Library of Munich, Germany.
  29. Paul Grauwe & Gunther Schnabl, 2004. "EMU entry strategies for the new member states," Intereconomics: Review of European Economic Policy, Springer, Springer, vol. 39(5), pages 241-246, September.
  30. Kutan, Ali M. & Yigit, Taner M., 2004. "Nominal and real stochastic convergence of transition economies," Journal of Comparative Economics, Elsevier, Elsevier, vol. 32(1), pages 23-36, March.
  31. Michael D. Bordo & Barry Eichengreen & Douglas A. Irwin, 1999. "Is Globalization Today Really Different than Globalization a Hunderd Years Ago?," NBER Working Papers, National Bureau of Economic Research, Inc 7195, National Bureau of Economic Research, Inc.
  32. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does financial globalization promote risk sharing?," Journal of Development Economics, Elsevier, Elsevier, vol. 89(2), pages 258-270, July.
  33. Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sorensen, 2008. "Risk sharing and portfolio allocation in EMU," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 334, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Masayoshi Hayashi, 2013. "On the Decomposition of Regional Stabilization and Redistribution," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-910, CIRJE, Faculty of Economics, University of Tokyo.
  2. Faruk Balli & Faisal Rana, 2014. "Determinants of risk sharing through remittances: cross-country evidence," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2014-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Faruk Balli & Syed Abul Basher & Faisal Rana, 2014. "The determinants of the volatility of returns on cross-border asset holdings," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2014-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:43720. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.