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Financial integration and consumption risk sharing and smoothing

  • Suzuki, Yui
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    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059056013000889
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

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

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    Handle: RePEc:eee:reveco:v:29:y:2014:i:c:p:585-598
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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