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Common Correlated Effects and International Risk Sharing

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  • Peter Fuleky

    () (UHERO and Department of Economics, University of Hawaii at Manoa)

  • L Ventura

    (Department of Economics and Law, Sapienza, University of Rome)

  • Qianxue Zhao

    (Department of Economics, University of Hawaii at Manoa)

Abstract

Existing studies of risk pooling among groups of countries are predicated upon the highly restrictive assumption that all countries have symmetric responses to aggregate shocks. We show that the conventional risk sharing test fails to isolate idiosyncratic fluctuations within countries and produces spurious results. To avoid these problems, we propose an alternative form of the risk sharing test that is robust to heterogeneous country characteristics. In our empirical example, we provide estimates using the pro- posed approach for various groupings of 158 countries.

Suggested Citation

  • Peter Fuleky & L Ventura & Qianxue Zhao, 2013. "Common Correlated Effects and International Risk Sharing," Working Papers 201315, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:201315
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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_13-15R.pdf
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    References listed on IDEAS

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    Cited by:

    1. Malin Gardberg, 2016. "Determinants of International Consumption Risk Sharing in Emerging Markets and Developing Countries," EcoMod2016 9452, EcoMod.

    More about this item

    Keywords

    Panel data; Cross-sectional dependence; International risk sharing; Consumption insurance;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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