What Can Explain the Apparent Lack of International Consumption Risk Sharing?
Recent research in international business cycles finds that international consumption comovements do not match the risk-sharing predictions of standard complete markets models. In this paper, the author asks whether two different types of explanations can help explain this result: (1) nonseparabilities between tradables and nontradable leisure or goods and (2) the effects of capital market restrictions on consumption risk sharing. She finds that risk sharing cannot be resolved by either explanation alone. However, when the author allows for both nonseparabilities and certain market restrictions, risk sharing among unrestricted countries cannot be rejected. Copyright 1996 by University of Chicago Press.
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