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The Feasible Gains from International Risk Sharing

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  • Eijffinger, Sylvester
  • Wagner, Wolf

Abstract

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 in permanent consumption). Marginal benefits from further risk sharing are low, which indicates that feasible risk sharing can achieve most of the benefits from international risk 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.

Suggested Citation

  • Eijffinger, Sylvester & Wagner, Wolf, 2001. "The Feasible Gains from International Risk Sharing," CEPR Discussion Papers 2691, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2691
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    Cited by:

    1. Elizabeth Asiedu & Yi Jin & Anne Villamil, 2006. "Do lack of transparency and enforcement undermine international risk-sharing?," Annals of Finance, Springer, vol. 2(2), pages 123-140, March.
    2. Gilbert Mbara, 2018. "Risk sharing with gradual financial integration: the Visegrád countries and the euro area," Bank i Kredyt, Narodowy Bank Polski, vol. 49(1), pages 17-44.

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    Keywords

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    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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