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Incomplete Intertemporal Consumption Smoothing and Incomplete Risksharing

  • Pierfederico Asdrubali

    (John Cabot University)

  • Soyoung Kim

    ()

    (Department of Economics, Korea University)

This paper develops a method to estimate jointly the degree of intertemporal consumption smoothing and the degree of ¡±interregional¡± risksharing. The empirical results for the US states and OECD and EU countries suggest that: 1) regardless of the assumption on the degree of intertemporal consumption smoothing, the degree of risksharing within a country is larger than across countries; 2) the degree of intertemporal consumption smoothing within a country is also larger than across countries; 3) The difference between the degree of intertemporal consumption smoothing within US states and across OECD and EU countries is as large as the difference between the degree of risksharing, contrary to the findings of some past studies.

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File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w0725.pdf
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Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 0725.

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Length: 28 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:iek:wpaper:0725
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  1. Ostergaard, Charlotte & Sørensen, Bent E & Yosha, Oved, 2001. "Consumption and Aggregate Constraints: Evidence from US States and Canadian Provinces," CEPR Discussion Papers 2947, C.E.P.R. Discussion Papers.
  2. 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.
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  7. Mankiw, N Gregory & Rotemberg, Julio J & Summers, Lawrence H, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 225-51, February.
  8. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, March.
  9. Jacques Mélitz & Frédéric Zumer, 1999. "Interregional and International Risk Sharing and Lessons for EMU," Sciences Po publications n°2154, Sciences Po.
  10. Canova, Fabio & Ravn, Morten O, 1996. "International Consumption Risk Sharing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 573-601, August.
  11. Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
  12. Sorensen, B-E & Yosha, O, 1996. "International Risk Sharing and European Monetary Unification," Papers 40-96, Tel Aviv.
  13. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-56, October.
  14. Pierfederico Asdrubali & Soyoung Kim, 2000. "Dynamic Risk Sharing in the United States and Europe," Econometric Society World Congress 2000 Contributed Papers 1621, Econometric Society.
  15. Michael W. Klein & Tamim Bayoumi, 1997. "A Provincial View of Economic Integration," IMF Working Papers 97/41, International Monetary Fund.
  16. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
  17. Urban J. Jermann & Marianne Baxter, 1999. "Household Production and the Excess Sensitivity of Consumption to Current Income," American Economic Review, American Economic Association, vol. 89(4), pages 902-920, September.
  18. Asdrubali, Pierfederico & Kim, Soyoung, 2008. "On the empirics of international smoothing," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 374-381, March.
  19. Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-94, March.
  20. Michener, Ron, 1984. "Permanent income in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 297-305, May.
  21. John Y. Campbell, 1986. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," NBER Working Papers 1805, National Bureau of Economic Research, Inc.
  22. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
  23. 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.
  24. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  25. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  26. Mario J Crucini & Gregory D Hess, 1999. "International and Intranational Risk Sharing," CESifo Working Paper Series 227, CESifo Group Munich.
  27. Campbell, John Y & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 357-73, July.
  28. Asdrubali, Pierfederico & Sorensen, Bent E & Yosha, Oved, 1996. "Channels of Interstate Risk Sharing: United States 1963-1990," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1081-1110, November.
  29. 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.
  30. Maurice Obstfeld, 1994. "Are Industrial-Country Consumption Risks Globally Diversified?," NBER Working Papers 4308, National Bureau of Economic Research, Inc.
  31. Baxter, M., 1994. "International Trade and Business Cycles," RCER Working Papers 390, University of Rochester - Center for Economic Research (RCER).
  32. 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.
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