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International Consumption Risk Sharing

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  • Canova, Fabio
  • Ravn, Morten O

Abstract

This paper examines whether or not consumption risk sharing occurs in a panel of industrialized countries. We derive the international consumption insurance proposition in a simple theoretical model and show how it should be modified in more complicated models. We analyse empirically the implications of the proposition for pairs of countries over cycles of different length, and find that aggregate domestic consumption is completely insured against idiosyncratic real, demographic, fiscal and monetary shocks, but that it co-varies with domestic variables over long or infinite cycles. Also, the cross equation restrictions imposed by the theory are, in general, rejected. The policy implications of the results are discussed.

Suggested Citation

  • Canova, Fabio & Ravn, Morten O, 1994. "International Consumption Risk Sharing," CEPR Discussion Papers 1074, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1074
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    References listed on IDEAS

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    1. 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.
    2. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
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    More about this item

    Keywords

    Capital Mobility; Consumption Insurance; International Investments; Long Run Convergence;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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