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Debt Crises and Risk Sharing: The Role of Markets versus Sovereigns

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  • Kalemli-Ozcan, Sebnem
  • Luttini, Emiliano
  • Sørensen, Bent E

Abstract

Using a variance decomposition of shocks to GDP, we quantify the role of international factor income, international transfers, and saving in achieving risk sharing during the recent European crisis. We focus on the sub-periods 1990--2007, 2008--2009, and 2010 and consider separately the European countries hit by the sovereign debt crisis in 2010. We decompose risk sharing from saving into contributions from government and private saving and show that fiscal austerity programs played an important role in hindering risk sharing during the sovereign debt crisis.

Suggested Citation

  • Kalemli-Ozcan, Sebnem & Luttini, Emiliano & Sørensen, Bent E, 2013. "Debt Crises and Risk Sharing: The Role of Markets versus Sovereigns," CEPR Discussion Papers 9541, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9541
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    Cited by:

    1. Thirion, Gilles, 2017. "European Fiscal Union: Economic rationale and design challenges," CEPS Papers 12160, Centre for European Policy Studies.
    2. Davide Furceri & Aleksandra Zdzienicka, 2015. "The Euro Area Crisis: Need for a Supranational Fiscal Risk Sharing Mechanism?," Open Economies Review, Springer, vol. 26(4), pages 683-710, September.
    3. Alessandro Ferrari & Anna Rogantini Picco, 2016. "International Risk Sharing in the EMU," Working Papers 17, European Stability Mechanism.
    4. Dragomirescu-Gaina, Catalin & Philippas, Dionisis, 2015. "Strategic interactions of fiscal policies in Europe: A global VAR perspective," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 49-76.
    5. P. Butzen & S. Cheliout & H. Geeroms, 2014. "Lessons from the US for the institutional design of EMU," Economic Review, National Bank of Belgium, issue ii, pages 82-101, September.
    6. Stähler, Nikolai & Moyen, Stephane & Winkler, Fabian, 2016. "Optimal Unemployment Insurance and International Risk Sharing," Annual Conference 2016 (Augsburg): Demographic Change 145612, Verein für Socialpolitik / German Economic Association.
    7. Alice, Albonico & Alessia, Paccagnini & Patrizio, Tirelli, 2016. "PIIGS in the Euro Area. An Empirical DSGE Model," Working Papers 331, University of Milano-Bicocca, Department of Economics, revised 11 Mar 2016.
    8. Valentina Milano, 2017. "Risk Sharing in the Euro Zone: the Role of European Institutions," Working Papers CELEG 1701, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    9. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516.
    10. Ruiz Ortega, Esther & Poncela, Pilar & Corona, Francisco, 2017. "Estimating non-stationary common factors : Implications for risk sharing," DES - Working Papers. Statistics and Econometrics. WS 24585, Universidad Carlos III de Madrid. Departamento de Estadística.
    11. Pilar Poncela & Filippo Pericoli & Anna Manca & Filippo Michela Nardo, 2016. "Risk Sharing in Europe," JRC Working Papers JRC104621, Joint Research Centre (Seville site).

    More about this item

    Keywords

    Capital Markets; Income Insurance; International Financial Integration;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F15 - International Economics - - Trade - - - Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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