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International and Intranational Risk Sharing


  • Mario J Crucini
  • Gregory D Hess


This paper reviews three important issues in the literature on international and intranational risk sharing. First, we establish a comprehensive se t of stylized facts for consumption risk sharing within and across countries. Consistent with the findings in the literature, we find that the correlation of our consumtion measure across countries is much less than that for output. As pointed to by Backu s, Kehoe and Kydland (1993), this constitutes a violation of complete international risk sharing, which they labeled the 'quantity anomaly'. The findings using international data are contrasted with those using intranational data for Japanese prefectures, U .S. states and Canadian regions. Consistent with the findings by Crucini (1998) and Hess and Shin (1997, 1998), intranational data continues to demonstrate the quantity anomaly for the U.S., but not for Japan and Canada. Second, following the work by Crucini (1998), we estimate an econometric specification which allows us to quantify the extent of risk sharing within and across countries. The results indicate that, while still incomplete, a larger fraction of risk is shared within countries than across the m. Finally, using these estimates of the current extent of risk sharing, we calculate the potential welfare benefits from additional international and intranational risk sharing.

Suggested Citation

  • Mario J Crucini & Gregory D Hess, 1999. "International and Intranational Risk Sharing," CESifo Working Paper Series 227, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_227

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    References listed on IDEAS

    1. Devereux, Michael B. & Gregory, Allan W. & Smith, Gregor W., 1992. "Realistic cross-country consumption correlations in a two-country, equilibrium, business cycle model," Journal of International Money and Finance, Elsevier, vol. 11(1), pages 3-16, February.
    2. 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.
    3. Altug, Sumru & Miller, Robert A, 1990. "Household Choices in Equilibrium," Econometrica, Econometric Society, vol. 58(3), pages 543-570, May.
    4. Hess, Gregory D. & Shin, Kwanho, 2000. "Risk sharing by households within and across regions and industries," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 533-560, June.
    5. Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August.
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    Cited by:

    1. Michael Artis, 2008. "What do we now know about currency unions?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(1), pages 13-29.
    2. Ralph Chami & Gregory Hess, 2005. "For Better or For Worse? State-Level Marital Formation and Risk Sharing," Review of Economics of the Household, Springer, vol. 3(4), pages 367-385, December.
    3. Attilio Gardini & Giuseppe Cavaliere & Luca Fanelli, 2005. "Risk Sharing, avversione al rischio e stabilizzazione delle economie regionali in Italia," Rivista di Politica Economica, SIPI Spa, vol. 95(3), pages 219-266, May-June.
    4. Stephane Pallage & Michel A. Robe, 2002. "The States vs. the states: On the Welfare Cost of Business Cycles in the U.S," Cahiers de recherche du Département des sciences économiques, UQAM 20-17, Université du Québec à Montréal, Département des sciences économiques, revised Oct 2002.
    5. Pierfederico Asdrubali & Soyoung Kim, 2008. "Incomplete Intertemporal Consumption Smoothing and Incomplete Risk Sharing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1521-1531, October.
    6. Du, Julan & He, Qing & Rui, Oliver M., 2011. "Channels of Interprovincial Consumption Risk Sharing in the People’s Republic of China," ADBI Working Papers 334, Asian Development Bank Institute.
    7. Davide Furceri, 2004. "Does the EMU Need a Fiscal Transfer Mechanism?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 73(3), pages 418-428.
    8. Ohanian, Lee E. & Restrepo-Echavarria, Paulina & Wright, Mark L. J., 2013. "Bad Investments and Missed Opportunities? Capital Flows to Asia and Latin America, 1950-2007," Working Papers 2014-38, Federal Reserve Bank of St. Louis, revised 16 May 2017.
    9. Soyoung Kim & Jong-Wha Lee & Kwanho Shin, 2006. "Regional and Global Financial Integration in East Asia," Discussion Paper Series 0602, Institute of Economic Research, Korea University.
    10. Predrag Petrović, 2016. "Backus–Smith puzzle and the European Union: It’s not just the nominal exchange rate," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 34(2), pages 393-418.
    11. Del Negro, Marco, 2002. "Asymmetric shocks among U.S. states," Journal of International Economics, Elsevier, vol. 56(2), pages 273-297, March.
    12. Chan, Kenneth S. & Lai, Jennifer T. & Yan, Isabel K.M., 2014. "Consumption risk sharing and self-insurance across provinces in China: 1952–2008," China Economic Review, Elsevier, vol. 30(C), pages 66-85.
    13. Ventura, Luigi, 2008. "Risk sharing opportunities and macroeconomic factors in Latin American and Caribbean countries : A consumption insurance assessment," Policy Research Working Paper Series 4490, The World Bank.
    14. Pierucci, Eleonora & Ventura, Luigi, 2012. "International risk sharing and globalization," MPRA Paper 35869, University Library of Munich, Germany.
    15. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
    16. Portes, Richard, 1999. "Global Financial Markets and Financial Stability: Europe's Role," CEPR Discussion Papers 2298, C.E.P.R. Discussion Papers.
    17. Vincent Labhard & Michael Sawicki, 2006. "International and intranational consumption risk sharing: the evidence for the United Kingdom and OECD," Bank of England working papers 302, Bank of England.
    18. Claude DUPUY (GREThA UMR CNRS 5113) & Matthieu MONTALBAN (GREThA UMR CNRS 5113) & Sylvain MOURA (GREThA UMR CNRS 5113), 2009. "Finance and Industrial Dynamics (In French)," Cahiers du GREThA 2009-24, Groupe de Recherche en Economie Théorique et Appliquée.
    19. Davide Furceri, 2002. "Risk-sharing e architettura istituzionale delle politiche di stabilizzazione nell'UME: aspetti metodologici e verifica empirica," Rivista di Politica Economica, SIPI Spa, vol. 92(6), pages 175-210, November-.

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