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The Spirit of Capitalism and International Risk Sharing

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  • Timothy K. Chue

Abstract

We show that a model of the spirit of capitalism can generate a high degree of international risk sharing as measured by the discount-factor-based approach of Brandt, Cochrane, and Santa-Clara (2001), even when consumption and portfolio holdings exhibit "home bias". We also show how portfolio externalities can arise in the model, and highlight the caution that one needs in interpreting discount-factor-based measures of international risk sharing: in the presence of portfolio externalities, even when the measured degree of risk sharing is perfect, it is still possible for government policies to induce investors to hold better-diversified portfolios and attain higher welfare

Suggested Citation

  • Timothy K. Chue, 2004. "The Spirit of Capitalism and International Risk Sharing," Econometric Society 2004 Far Eastern Meetings 589, Econometric Society.
    • Handle: RePEc:ecm:feam04:589
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    References listed on IDEAS

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    Cited by:

    1. Luo, Yulei & Young, Eric R., 2009. "The Wealth Distribution And The Demand For Status," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 1-30, May.

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    More about this item

    Keywords

    The spirit of capitalism; International risk sharing; Discount factor; Portfolio externality.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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