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How big are potential welfare gains from international risksharing?

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  • Eric Van Wincoop

Abstract

There is extensive evidence that the degree of risksharing accomplished by international financial markets is low. Some have argued that this is the result of small potential benefits from risksharing. The gains from riskpooling that have been reported in the literature range from negligible to enormous. This paper documents to what extent the results are sensitive to the parameterization of preferences, and assumptions about the stochastic process and measurement of the endowment. We find that for realistic assumptions about the underlying factors, the potential gains from risksharing are quite sizable. For OECD countries they are equivalent to increases in tradables consumption in the range of 1.1 to 3.5% for a 50 year horizon, and 2.5 to 7.4% for a 100 year horizon

Suggested Citation

  • Eric Van Wincoop, 1998. "How big are potential welfare gains from international risksharing?," Staff Reports 37, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:37
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    Keywords

    International finance; Risk;

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