This paper formally examines the implications of international consumption risk sharing for a panel of industrialized countries. We theoretically derive the international consumption insurance proposition in a simple setup and show how it should be modified in more complicated models. We empirically analyze the implications of the theory for pairs of countries across frequencies of the spectrum and find that aggregate domestic consumption is almost completely insured against idiosyncratic real, demographic, fiscal and monetary shocks over short cycles, but that it covaries with these variables over medium and long cycles. The cross equation restrictions imposed by the theory are, in general, rejected. The policy implications of the results are discussed.
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number
135.
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Article
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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