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Banks, Financial Markets and International Consumption Risk Sharing

  • Markus Leibrecht
  • Johann Scharler

In this paper we empirically explore how characteristics of the domestic financial system in uence the international allocation of consumption risk using a sample of OECD countries. Our results show that the extent of risk sharing achieved does not depend on the overall development of the domestic financial system per se. Rather, it depends on how the financial system is organized. Speciffcally, we find that coun- tries characterized by developed financial markets are less exposed to idiosyncratic risk, whereas the development of the banking sector contributes little to the inter- national diversification of consumption risk.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 13 (2012)
Issue (Month): 3 (08)
Pages: 331-351

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Handle: RePEc:bla:germec:v:13:y:2012:i:3:p:331-351
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  16. Mathias Hoffmann & Iryna Shcherbakova, 2008. "Consumption risk sharing over the business cycle: the role of small firms' access to credit markets," IEW - Working Papers 363, Institute for Empirical Research in Economics - University of Zurich.
  17. Artis, Michael J & Hoffmann, Mathias, 2007. "Declining Home Bias and the Increase in International Risk Sharing: Lessons from European Integration," CEPR Discussion Papers 6617, C.E.P.R. Discussion Papers.
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