International Risk-Sharing and Commodity Prices
AbstractCole and Obstfeld (1991) exposited a classic result where equilibrium movements in the terms of trade could make ex ante risk-sharing arrangements unnecessary: a unity elasticity of substitution across goods and production specialization. This paper extends their model to N countries and M commodities (N > M). Here the terms of trade provides insurance against commodity-specific shocks, not country-specific shocks. Using commodity-level production data at the national level and world commodity prices we document significant terms of trade variability and positive responses of nation-specific production to terms of trade improvements. The endogenous terms of trade insurance mechanism highlighted in CO is virtually non-existent.
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Bibliographic InfoPaper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 1121.
Date of creation: Oct 2011
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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html
Risk-sharing; developing countries; terms of trade;
Other versions of this item:
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-01 (All new papers)
- NEP-BEC-2012-02-01 (Business Economics)
- NEP-OPM-2012-02-01 (Open Economy Macroeconomic)
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