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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.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-1999/WP227.PDF
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 227.

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Date of creation: 1999
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Handle: RePEc:ces:ceswps:_227
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  1. 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.
  2. 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.
  3. Altug, Sumru & Miller, Robert A, 1990. "Household Choices in Equilibrium," Econometrica, Econometric Society, vol. 58(3), pages 543-70, May.
  4. 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.
  5. Gregory D. Hess & Kwanho Shin, 1997. "Risk sharing by households within and across regions and industries," Research Working Paper 97-07, Federal Reserve Bank of Kansas City.
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