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Risk Sharing in the Euro Zone: the Role of European Institutions

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  • Valentina Milano

    () (LUISS "Guido Carli" University)

Abstract

We study risk sharing in the Euro Area (EA) and compare it to the US federation. Using the method of variance decomposition first implemented by Asdrubali et al. (1996), we update and revisit the main channels of risk sharing (net factor income, international transfers and credit markets). We contribute to this literature by splitting the credit market channel into two parts: smoothing achieved through private institutions (markets) and the public sector (national governments and official European institutions). We find that the role played by European institutions (i.e., public lending from the ESFS, ESFM, ESM and the European Commission) has been quite relevant during the recent financial crisis and largely compensated the reduced role of national governments.

Suggested Citation

  • Valentina Milano, 2017. "Risk Sharing in the Euro Zone: the Role of European Institutions," Working Papers CELEG 1701, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  • Handle: RePEc:lui:celegw:1701
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    Cited by:

    1. repec:zbw:svrwjg:201819 is not listed on IDEAS
    2. Beetsma, Roel & Cima, Simone & Cimadomo, Jacopo, 2018. "A minimal moral hazard central stabilisation capacity for the EMU based on world trade," CEPR Discussion Papers 12600, C.E.P.R. Discussion Papers.
    3. Jacopo Cimadomo & Oana Furtuna & Massimo Giuliodori, 2017. "Private and Public Risk Sharing in the Euro Area," Tinbergen Institute Discussion Papers 17-064/VI, Tinbergen Institute.

    More about this item

    Keywords

    Risk sharing; Euro Area; European transfers; income insurance; international financial integration.;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F15 - International Economics - - Trade - - - Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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