IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe

  • Sebnem Kalemli-Ozcan

    ()

    (Department of Economics, University of Houston)

  • Bent E. Sorensen

    (Department of Economics, University of Houston)

  • Oved Yosha

    (Tel Aviv University)

We find that risk sharing in the European Union (EU) has been increasing over the past decade due to increased cross-ownership of assets across countries. Industrial special- ization has also been increasing over the last decade and we conjecture that risk sharing plays an important causal effect by allowing countries to specialize without being subject to higher income risk even though the variability of output may increase. We believe that lower trade barriers may not have played a dominant causal role during this decade be- cause the effect of lower trade barriers has probably already played itself out. We further find that the asymmetry of GDP fluctuations in the EU has declined steeply over the last two decades. This may be due to economic policies becoming more similar as countries were adjusting fiscal policy in order to meet the Maastricht criteria, but a similar result was found for U.S. states so the finding may be due to a different nature of the shocks to the world economy in the 1990s. We expect to see a further rise in risk sharing between EU countries, accompanied by more specialization. However, the resulting increase in GDP asymmetry should be minor and will have small welfare costs because increased risk sharing should lower income (GNP) asymmetry.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.uh.edu/econpapers/RePEc/hou/wpaper/2004-05.pdf
Download Restriction: no

Paper provided by Department of Economics, University of Houston in its series Working Papers with number 2004-05.

as
in new window

Length: 38 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:hou:wpaper:2004-05
Contact details of provider: Postal: Houston TX 77023
Web page: http://www.uh.edu/class/economics/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Saint-Paul, G., 1990. "Technological Choice, Financial Markets and Economic Development," DELTA Working Papers 90-30, DELTA (Ecole normale supérieure).
  2. Acemoglu, Daron & Zilibotti, Fabrizio, 1996. "Was Prometheus Unbound by Chance? Risk, Diversification and Growth," CEPR Discussion Papers 1426, C.E.P.R. Discussion Papers.
  3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  4. Canova, Fabio & Ravn, Morten O, 1994. "International Consumption Risk Sharing," CEPR Discussion Papers 1074, C.E.P.R. Discussion Papers.
  5. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-51, December.
  6. Coe, David T & Helpman, Elhanan, 1993. "International R&D Spillovers," CEPR Discussion Papers 840, C.E.P.R. Discussion Papers.
  7. Imbs, Jean, 2003. "Trade, Finance, Specialization and Synchronization," CEPR Discussion Papers 3779, C.E.P.R. Discussion Papers.
  8. 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.
  9. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 1999. "The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries," CEPR Discussion Papers 2231, C.E.P.R. Discussion Papers.
  10. Paolo Mauro, 2000. "Emerging Market Spreads: Then Versus Now," Economics Series Working Papers 2001-FE-03, University of Oxford, Department of Economics.
  11. Helpman, Elhanan, 1988. "Trade Patterns under Uncertainty with Country Specific Shocks," Econometrica, Econometric Society, vol. 56(3), pages 645-59, May.
  12. Marianne Baxter & Mario J. Crucini, 1992. "Business cycles and the asset structure of foreign trade," Discussion Paper / Institute for Empirical Macroeconomics 59, Federal Reserve Bank of Minneapolis.
  13. Sascha O. BECKER & Mathias HOFFMANN, 2001. "International Risk-Sharing in the Short Run and in the Long Run," Economics Working Papers ECO2001/03, European University Institute.
  14. Domenico Giannone & Michèle Lenza, 2009. "The Feldstein-Horioka Fact," Working Papers ECARES 2009_022, ULB -- Universite Libre de Bruxelles.
    • Domenico Giannone & Michele Lenza, 2010. "The Feldstein-Horioka Fact," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 103-117 National Bureau of Economic Research, Inc.
  15. Barry Eichengreen., 1990. "One Money for Europe? Lessons from the US Currency Union," Economics Working Papers 90-132, University of California at Berkeley.
  16. Gregory D. Hess & Kwanho Shin, 1995. "Intranational business cycles in the United States," Research Working Paper 95-07, Federal Reserve Bank of Kansas City.
  17. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers.
  18. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August.
  19. Kemp, Murray C & Liviatan, Nissan, 1973. "Production and Trade Patterns under Uncertainty," The Economic Record, The Economic Society of Australia, vol. 49(126), pages 215-27, June.
  20. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October.
  21. Gene M. Grossman & Assaf Razin, 1983. "International Capital Movements Under Uncertainty," NBER Working Papers 1075, National Bureau of Economic Research, Inc.
  22. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
  23. Melitz, Jacques & Zumer, Frédéric, 1999. "Interregional and International Risk Sharing and Lessons for EMU," CEPR Discussion Papers 2154, C.E.P.R. Discussion Papers.
  24. 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.
  25. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
  26. Brainard, William C. & Cooper, Richard N., 1968. "Uncertainty and Diversification in International Trade," Food Research Institute Studies, Stanford University, Food Research Institute, issue 03.
  27. Kollmann, Robert, 1995. "The correlation of productivity growth across regions and industries in the United States," Economics Letters, Elsevier, vol. 47(3-4), pages 437-443, March.
  28. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
  29. Jonathan Heathcote & Fabrizio Perri, 2001. "Financial Globalization and Real Regionalization," Working Papers 01-11, New York University, Leonard N. Stern School of Business, Department of Economics.
  30. Imbs, Jean & Wacziarg, Romain, 2000. "Stages of Diversification," CEPR Discussion Papers 2642, C.E.P.R. Discussion Papers.
  31. Sorensen, Bent E. & Yosha, Oved, 1998. "International risk sharing and European monetary unification," Journal of International Economics, Elsevier, vol. 45(2), pages 211-238, August.
  32. Maurice Obstfeld., 1993. "Risk-Taking, Global Diversification, and Growth," Center for International and Development Economics Research (CIDER) Working Papers C93-016, University of California at Berkeley.
  33. Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August.
  34. Alan C. Stockman, 1987. "Sectoral and National Aggregate Disturbances to Industrial Output in Seven European Countries," NBER Working Papers 2313, National Bureau of Economic Research, Inc.
  35. Sørensen, Bent E & Yosha, Oved, 1999. "Risk Sharing and Industrial Specialization: Regional and International Evidence," CEPR Discussion Papers 2295, C.E.P.R. Discussion Papers.
  36. Helpman, Elhanan & Razin, Assaf, 1978. "A theory of international trade under uncertainty," MPRA Paper 22112, University Library of Munich, Germany.
  37. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  38. William Goetzmann & Lingfeng Li & K. Rouwenhorst, 2001. "Long-Term Global Market Correlations," Yale School of Management Working Papers ysm237, Yale School of Management, revised 01 Jan 2008.
  39. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 267-97, April.
  40. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
  41. Cohen, Daniel & Wyplosz, Charles, 1989. "The European Monetary Union: An Agnostic Evaluation," CEPR Discussion Papers 306, C.E.P.R. Discussion Papers.
  42. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 409-436, May.
  43. Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
  44. repec:rus:hseeco:123030 is not listed on IDEAS
  45. Anderson, James E., 1981. "The Heckscher-Ohlin and Travis-Vanek theorems under uncertainty," Journal of International Economics, Elsevier, vol. 11(2), pages 239-247, May.
  46. Massmann, Michael & Mitchell, James, 2003. "Reconsidering the evidence: Are Eurozone business cycles converging," ZEI Working Papers B 05-2003, ZEI - Center for European Integration Studies, University of Bonn.
  47. Maurice Obstfeld, 1994. "Are Industrial-Country Consumption Risks Globally Diversified?," NBER Working Papers 4308, National Bureau of Economic Research, Inc.
  48. Feeney, JoAnne, 1999. "International risk sharing, learning by doing, and growth," Journal of Development Economics, Elsevier, vol. 58(2), pages 297-318, April.
  49. Huberman, Gur, 2001. "Familiarity Breeds Investment," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-80.
  50. Greenwood, Jeremy & Jovanovic, Boyan, 1988. "Financial Development, Growth, And The Distribution Of Income," Working Papers 88-12, C.V. Starr Center for Applied Economics, New York University.
  51. Fatás, Antonio, 1997. "EMU: Countries or Regions? Lessons from the EMS Experience," CEPR Discussion Papers 1558, C.E.P.R. Discussion Papers.
  52. Maurice Obstfeld, 1995. "Evaluating Risky Consumption Paths: The Role of Intertemporal Substitutability," NBER Technical Working Papers 0120, National Bureau of Economic Research, Inc.
  53. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 1999. "Industrial specialization and the asymmetry of shocks across regions," Research Working Paper 99-06, Federal Reserve Bank of Kansas City.
  54. Altug, Sumru & Miller, Robert A, 1990. "Household Choices in Equilibrium," Econometrica, Econometric Society, vol. 58(3), pages 543-70, May.
  55. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  56. De Grauwe, Paul & Vanhaverbeke, Wim, 1991. "Is Europe an Optimum Currency Area? Evidence from Regional Data," CEPR Discussion Papers 555, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hou:wpaper:2004-05. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dietrich Vollrath)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.