IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Financial integration and consumption risk sharing and smoothing

  • Suzuki, Yui
Registered author(s):

    While paying careful attention to the stochastic properties of income process, this paper tests the joint rational expectation and permanent income hypothesis (RE/PIH) to clarify how and to what degree financial integration delinks national income and consumption. It is shown that both the OECD and the non-OECD countries benefit from financial integration in terms of consumption risk sharing and smoothing. The RE/PIH for the transitory income is not rejected for the OECD countries suggesting full consumption smoothing. Regression results also support the RE/PIH prediction that financial integration delivers even larger increases in consumption responding to positive shocks to income growth.

    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:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 29 (2014)
    Issue (Month): C ()
    Pages: 585-598

    in new window

    Handle: RePEc:eee:reveco:v:29:y:2014:i:c:p:585-598
    Contact details of provider: Web page:

    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. Gian M Milesi-Ferretti & Philip R. Lane, 1999. "The External Wealth of Nations; Measures of Foreign Assets and Liabilities for Industrial and Developing Countries," IMF Working Papers 99/115, International Monetary Fund.
    2. Menzie D. Chinn & Hiro Ito, 2002. "Capital Account Liberalization, Institutions and Financial Development: Cross Country Evidence," NBER Working Papers 8967, National Bureau of Economic Research, Inc.
    3. Marco Terrones & Ayhan Kose & Eswar S Prasad, 2007. "How Does Financial Globalization Affect Risk Sharing? Patterns and Channels," IMF Working Papers 07/238, International Monetary Fund.
    4. Lewis, Karen K., 2000. "Why do stocks and consumption imply such different gains from international risk sharing?," Journal of International Economics, Elsevier, vol. 52(1), pages 1-35, October.
    5. Pierfederico Asdrubali & Bent E. Sørensen & Oved Yosha, 1996. "Channels of Interstate Risk Sharing: United States 1963–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1081-1110.
    6. Sorensen, B-E & Yosha, O, 1996. "International Risk Sharing and European Monetary Unification," Papers 40-96, Tel Aviv.
    7. Elwood, S Kirk, 1998. "Testing for Excess Sensitivity in Consumption: A State-Space/Unobserved Components Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 64-82, February.
    8. Tesar, Linda L., 1991. "Savings, investment and international capital flows," Journal of International Economics, Elsevier, vol. 31(1-2), pages 55-78, August.
    9. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
    10. Eric Van Wincoop, 1998. "How big are potential welfare gains from international risksharing?," Staff Reports 37, Federal Reserve Bank of New York.
    11. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 267-97, April.
    12. Mark Aguiar & Gita Gopinath, 2004. "Emerging market business cycles: the cycle is the trend," Working Papers 04-4, Federal Reserve Bank of Boston.
    13. Yan Bai & Jing Zhang, 2009. "Financial Integration and International Risk Sharing," Working Papers 594, Research Seminar in International Economics, University of Michigan.
    14. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
    15. Bent E. S�rensen & Oved Yosha, 1998. "International Risk Sharing and European Monetary Unification," Temi di discussione (Economic working papers) 327, Bank of Italy, Economic Research and International Relations Area.
    16. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
    17. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Working Paper Research 53, National Bank of Belgium.
    18. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Growth Volatility and Financial Liberalization," NBER Working Papers 10560, National Bureau of Economic Research, Inc.
    19. Ćorić, Bruno & Pugh, Geoff, 2013. "Foreign direct investment and output growth volatility: A worldwide analysis," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 260-271.
    20. Stefano Athanasoulis & Eric Van Wincoop, 1997. "Growth uncertainty and risksharing," Staff Reports 30, Federal Reserve Bank of New York.
    21. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    22. Artis, Michael J & Hoffmann, Mathias, 2004. "Financial Globalization, International Business Cycles and Consumption Risk Sharing," CEPR Discussion Papers 4697, C.E.P.R. Discussion Papers.
    23. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
    24. Gehringer, Agnieszka, 2013. "Growth, productivity and capital accumulation: The effects of financial liberalization in the case of European integration," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 291-309.
    25. Ayhan Kose & Kenneth Rogoff & Eswar S Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries; Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
    26. Marco Terrones & Eswar S Prasad & Ayhan Kose, 2003. "Financial Integration and Macroeconomic Volatility," IMF Working Papers 03/50, International Monetary Fund.
    27. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
    28. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
    Full references (including those not matched with items on IDEAS)

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

    When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:29:y:2014:i:c:p:585-598. 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: (Shamier, Wendy)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.