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International Consumption Risk Sharing with Incomplete Goods and Asset Markets

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  • Sven Blank

Abstract

Perfect consumption risk sharing requires both, frictionless goods as well as frictionless financial market integration. This project aims at analyzing the consequences of both type of frictions for the allocation of risk across countries in a unified framework. To this end, the theoretical model by Ghironi and Melitz (2005) is extended to allow for international trade in equities. This setup incorporates impediments to international trade in goods and assets. Impulse responses show that the degree of financial market integration and the time horizon considered, substantially alter the extent of consumption risk sharing depending on the nature of the underlying shock.

Suggested Citation

  • Sven Blank, 2009. "International Consumption Risk Sharing with Incomplete Goods and Asset Markets," Working Paper / FINESS 4.2, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwfin:diwfin4.2
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.96138.de/diw_finess_04020.pdf
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    References listed on IDEAS

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    7. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 865-915.
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    Cited by:

    1. Sven Blank, 2009. "Research Note on "International Consumption Risk Sharing and Monetary Policy"," Working Paper / FINESS 4.3, DIW Berlin, German Institute for Economic Research.
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    More about this item

    Keywords

    International portfolio choice; consumption risk sharing; trade frictions; financial market frictions;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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