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International Risk Sharing During the Globalization Era

Author

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  • Akito Matsumoto
  • Robert P Flood
  • Nancy P. Marion

Abstract

Though theory suggests financial globalization should improve international risk sharing, empirical support has been limited. We develop a simple welfare-based measure that captures how far countries are from the ideal of perfect risk sharing. We then take it to data and find international risk sharing has, indeed, improved during globalization. Improved risk sharing comes mostly from the convergence in rates of consumption growth among countries rather than from synchronization of consumption at the business cycle frequency. Our finding explains why many existing measures fail to detect improved risk sharing-they focus only on risk sharing at the business cycle frequency.

Suggested Citation

  • Akito Matsumoto & Robert P Flood & Nancy P. Marion, 2009. "International Risk Sharing During the Globalization Era," IMF Working Papers 09/209, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/209
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    References listed on IDEAS

    as
    1. Akito Matsumoto, 2007. "The Role of Nonseparable Utility and Nontradeables in International Business Cycles and Portfolio Choice," IMF Working Papers 07/163, International Monetary Fund.
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    Cited by:

    1. Phurichai Rungcharoenkitkul, 2011. "Risk Sharing and Financial Contagion in Asia; An Asset Price Perspective," IMF Working Papers 11/242, International Monetary Fund.
    2. Devereux, Michael B. & Kollmann, Robert, 2012. "International Risk Sharing," MPRA Paper 70129, University Library of Munich, Germany.
    3. Marianne Baxter, 2012. "International risk-sharing in the short run and in the long run," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 376-393, May.
    4. Ho, Chun-Yu & Ho, Wai-Yip Alex & Li, Dan, 2015. "Intranational risk sharing and its determinants," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 89-113.
    5. Epstein, Brendan & Mukherjee, Rahul & Ramnath, Shanthi, 2016. "Taxes and international risk sharing," Journal of International Economics, Elsevier, vol. 102(C), pages 310-326.
    6. Li, Jia, 2012. "On the Empirics of China's Inter-regional Risk Sharing," MPRA Paper 37805, University Library of Munich, Germany.
    7. Malin Gardberg, 2016. "Determinants of International Consumption Risk Sharing in Emerging Markets and Developing Countries," EcoMod2016 9452, EcoMod.
    8. Kristin Forbes & Ida Hjortsoe & Tsvetelina Nenova, 2016. "Current Account Deficits During Heightened Risk: Menacing or Mitigating?," NBER Working Papers 22741, National Bureau of Economic Research, Inc.
    9. Gilbert Koenig & Irem Zeyneloglu, 2012. "International consumption risk sharing and fiscal policy," Economics Bulletin, AccessEcon, vol. 32(2), pages 1250-1260.
    10. Hevia, Constantino & Serven, Luis, 2013. "Partial consumption insurance and financial openness across the world," Policy Research Working Paper Series 6479, The World Bank.
    11. Devereux, Michael B. & Smith, Gregor W. & Yetman, James, 2012. "Consumption and real exchange rates in professional forecasts," Journal of International Economics, Elsevier, pages 33-42.
    12. repec:wly:econjl:v::y:2017:i:601:p:571-623 is not listed on IDEAS
    13. Sawada, Yasuyuki & Takasaki, Yoshito, 2017. "Natural Disaster, Poverty, and Development: An Introduction," World Development, Elsevier, vol. 94(C), pages 2-15.
    14. Malik, Samreen, 2014. "Ex-ante implications of sovereign default," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 386-397.
    15. Christian Friedrich, 2015. "Does Financial Integration Increase Welfare? Evidence from International Household-Level Data," Staff Working Papers 15-4, Bank of Canada.
    16. Sadat, Nafis, 2015. "Estimation of International Financial Integration: Evidence from European Countries," MPRA Paper 66283, University Library of Munich, Germany, revised 25 Aug 2015.

    More about this item

    Keywords

    Economic models; Consumption; Cross country analysis; Economic growth; Business cycles; Risk management; International trade; Globalization; Welfare; International risk sharing; incomplete market; risk sharing; emerging markets; private consumption; income growth; Macroeconomic Aspects Of International Trade And Finance; Saving; Production; Employment; And Investment; welfare Economics;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • D6 - Microeconomics - - Welfare Economics

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