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Incomplete Intertemporal Consumption Smoothing and Incomplete Risksharing

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  • Pierfederico Asdrubali
  • Soyoung Kim

Abstract

This paper develops a method to estimate jointly the degree of (possibly incomplete) intertemporal consumption smoothing and the degree of (possibly incomplete) international/interregional risksharing. This approach generalizes and improves upon studies that either examine only intertemporal consumption smoothing, or analyze risksharing by making an extreme assumption on intertemporal consumption smoothing, or by adopting a purely empirical framework. The method is applied to the US states and OECD and EU countries to analyze how the degrees of risksharing and intertemporal consumption smoothing differ within a country and across countries. The empirical results suggest that: 1) regardless of the assumption on the degree of intertemporal consumption smoothing, the degree of risksharing within a country is larger than across countries 2) the degree of intertemporal consumption smoothing within a country is also larger than across countries, contrary to the findings of past channel studies. Finally, this paper also provides some foundations and suggests limitations of the empirical literature on channels of risksharing and intertemporal consumption smoothing.

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File URL: http://128.118.178.162/eps/if/papers/0506/0506010.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0506010.

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Length: 19 pages
Date of creation: 23 Jun 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0506010

Note: Type of Document - pdf; pages: 19
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Web page: http://128.118.178.162

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Keywords: Intertemporal consumption smoothing; risksharing; channels of risksharing; international vs. intranational;

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References

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Citations

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Cited by:
  1. Andrea Colciago & Tiziano Ropele & V. Anton Muscatelli & Patrizio Tirelli, 2008. "The Role of Fiscal Policy in a Monetary Union: are National Automatic Stabilizers Effective?," Review of International Economics, Wiley Blackwell, vol. 16(3), pages 591-610, 08.
  2. Alessandro Federici & Pierluigi Montalbano, 2012. "Macroeconomic volatility, consumption behaviour and welfare: A cross-country analysis," Working Paper Series 3612, Department of Economics, University of Sussex.
  3. Kurosaki, Takashi, 2011. "Vulnerability of Household Consumption to Village-level Aggregate Shocks in a Developing Country," PRIMCED Discussion Paper Series 8, Institute of Economic Research, Hitotsubashi University.
  4. Pierfederico Asdrubali & Soyoung Kim, 2005. "Consumption Smoothing Channels in Open Economies," International Finance 0506009, EconWPA.
  5. Hevia, Constantino & Serven, Luis, 2013. "Partial consumption insurance and financial openness across the world," Policy Research Working Paper Series 6479, The World Bank.
  6. Alun H. Thomas & Tamim Bayoumi, 2009. "Today Versus tomorrow," IMF Working Papers 09/248, International Monetary Fund.

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