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Testing for consumer risk-pooling in the open economy - further results

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In this supplement to Minford et al. (2021), we revisit the 'puzzle' in open economy studies that evidence of international risk-sharing is hardly seen despite active cross-country financial markets. We reassess both risk-pooling via state-contingent bonds, and uncovered interest parity both were believed to be different, and spuriously rejected, in previous work - in the context of a full DSGE model of the New Keynesian type. We prove that the two models are identical, both analytically and numerically.When tested as part of such a full DSGE model by indirect inference which circumvents the bias of single-equation tests, we Önd universal evidence of international risk-sharing.

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  • Minford, Patrick & Ou, Zhirong & Zhu, Zheyi, 2023. "Testing for consumer risk-pooling in the open economy - further results," Cardiff Economics Working Papers E2023/3, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2023/3
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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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