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Financial Globalization, Capital Account Liberalization and International Consumption Risk-Sharing

This paper analyzes whether international risk-sharing has improved along the same lines as the process of financial globalization. International financial markets allow investors to efficiently diversify their risks. Agents can protect themselves against fluctuations in their incomes through trading in assets with appropriate payoff structures. However, the usual finding in the literature is that international risk-sharing is quite limited. We argue that despite the liberalization of capital accounts and the removal of various legal barriers to capital mobility, international risk-sharing still appears to be rather limited.

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Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

Volume (Year): (2005)
Issue (Month): 1 ()
Pages: 98-106

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Handle: RePEc:onb:oenbfi:y:2005:i:1:b:3
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  1. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
  2. Sorensen, B-E & Yosha, O, 1996. "International Risk Sharing and European Monetary Unification," Papers 40-96, Tel Aviv.
  3. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-26, May.
  4. Melitz, Jacques & Zumer, Frédéric, 1999. "Interregional and International Risk Sharing and Lessons for EMU," CEPR Discussion Papers 2154, C.E.P.R. Discussion Papers.
  5. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  6. repec:ebl:ecbull:v:6:y:2004:i:23:p:1-13 is not listed on IDEAS
  7. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  8. Manganelli, Simone & Hartmann, Philipp & Maddaloni, Angela, 2003. "The euro area financial system: structure, integration and policy initiatives," Working Paper Series 0230, European Central Bank.
  9. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," CEG Working Papers 20012, Trinity College Dublin, Department of Economics.
  10. repec:tpr:qjecon:v:111:y:1996:i:4:p:1081-1110 is not listed on IDEAS
  11. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
  12. 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.
  13. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
  14. Andrew Atkeson & Tamim Bayoumi, 1993. "Do private capital markets insure regional risk? Evidence from the United States and Europe," Open Economies Review, Springer, vol. 4(3), pages 303-324, September.
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