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Interregional and International Risk Sharing and Lessons for EMU

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  • Jacques Mélitz
  • Frédéric Zumer

Abstract

How much risk sharing takes place between regions within countries, between countries internationally, and what are the lessons for EMU? We study these questions based on regional data from the US, Canada, the UK and Italy, and national data from an international sample of 23 OECD countries, including all 15 EU members, and do so with the aid of a modified version of a model by Asdrubali, Sørensen and Yosha. In conclusion, we find that even though the surrender of monetary policy will reduce the capacity of the members of EMU to smooth shocks via macroeconomic policy, the regime will promote smoothing of shocks via market channels.

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Paper provided by European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) in its series EUI-RSCAS Working Papers with number 2.

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Date of creation: 15 Feb 2000
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Handle: RePEc:erp:euirsc:p0017
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Keywords: currency; economic integration; EMU; Euro; European Central Bank; political economy;

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Find related papers by JEL classification:
  • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
  • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
  • F20 - International Economics - - International Factor Movements and International Business - - - General
  • F30 - International Economics - - International Finance - - - General

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  1. Sorensen, B-E & Yosha, O, 1996. "International Risk Sharing and European Monetary Unification," Papers 40-96, Tel Aviv.
  2. Melitz, Jacques & Zumer, Frédéric, 1998. "Regional Redistribution and Stabilization by the Centre in Canada, France, the United Kingdom and the United States: New Estimates Based on Panel Data Econometrics," CEPR Discussion Papers 1829, C.E.P.R. Discussion Papers.
  3. Pierfederico Asdrubali & Bent E. Sørensen & Oved Yosha, 1996. "Channels of Interstate Risk Sharing: United States 1963–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1081-1110.
  4. Stockman, Alan C. & Svensson, Lars E. O., 1987. "Capital flows, investment, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 171-201, March.
  5. Tamim Bayoumi & Michael W. Klein, 1997. "A Provincial View of Economic Integration," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 534-556, December.
  6. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
  7. John Y. Campbell & N. Gregory Mankiw, 1986. "Are Output Fluctuations Transitory?," NBER Working Papers 1916, National Bureau of Economic Research, Inc.
  8. 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.
  9. Jean IMBS, 1998. "Fluctuations, Bilateral Trade and the Exchange Rate Regime," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9906, Université de Lausanne, Faculté des HEC, DEEP, revised Nov 1998.
  10. Stafano Athanasoulis & Eric van Wincoop, 1998. "Risksharing within the United States: what have financial markets and fiscal federalism accomplished?," Research Paper 9808, Federal Reserve Bank of New York.
  11. Artis, Michael J & Zhang, W, 1997. "International Business Cycles and the ERM: Is There a European Business Cycle?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(1), pages 1-16, January.
  12. Hess, Gregory D & Shin, Kwanho, 1997. "International and Intranational Business Cycles," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 93-109, Autumn.
  13. Bayoumi, Tamim & Masson, Paul R., 1995. "Fiscal flows in the United States and Canada: Lessons for monetary union in Europe," European Economic Review, Elsevier, vol. 39(2), pages 253-274, February.
  14. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
  15. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  16. Bent E. S�rensen & Oved Yosha, 1998. "International Risk Sharing and European Monetary Unification," Temi di discussione (Economic working papers) 327, Bank of Italy, Economic Research and International Relations Area.
  17. Hess, Gregory D. & Shin, Kwanho, 1998. "Intranational business cycles in the United States," Journal of International Economics, Elsevier, vol. 44(2), pages 289-313, April.
  18. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  19. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, December.
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