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The Feasible Gains from International Risk Sharing

  • Sylvester Eijffinger
  • Wolf Wagner

We argue that since there are several impediments to international risk sharing, the welfare gains from full international risk sharing, which have been the object of analysis in the previous literature, are not suggestive. Instead, we study the gains from feasible risk sharing and find that they are considerable (0:5% increase inpermanent consumption). Marginal benefits from further risk sharing are low, which indicates that feasible risk sharing can achieve most of the benefits from internationalrisk sharing. Surprisingly, we find that sharing short term consumption risk lowers welfare. On the basis of the results we make suggestions on how to improve existing international risk sharing systems.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 472.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_472
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  1. Fernando Alvarez & Urban J. Jermann, 2004. "Using Asset Prices to Measure the Cost of Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1223-1256, December.
  2. Maurice Obstfeld, 1995. "Evaluating Risky Consumption Paths: The Role of Intertemporal Substitutability," NBER Technical Working Papers 0120, National Bureau of Economic Research, Inc.
  3. Stefano Athanasoulis & Eric van Wincoop, 1997. "Growth uncertainty and risksharing," Staff Reports 30, Federal Reserve Bank of New York.
  4. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
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