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International Risk Sharing in the Short Run and in the Long Run

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  • Marianne Baxter

Abstract

International risk-sharing has far-reaching implications both for economic policy and for basic research in economics. When countries do not share risk, individuals in those countries experience fluctuations in their consumption levels that are undesirable and possibly unnecessary. This paper extends and refines the study of international risk-sharing in two dimensions. First, this paper investigates risk-sharing at short vs. long horizons. Countries might, for example, pool risks associated with high-frequency shocks (e.g., seasonal fluctuations in crop yields) but might not share risks associated with low frequency shocks (e.g., different long-run national growth rates). Second, this paper studies bilateral risk-sharing, which is different from the approach taken in most previous studies. We find that there is evidence of substantial international risk-sharing at medium and low frequencies. There is evidence of high and increasing risk-sharing within Europe that is not apparent for other regions of the world.

Suggested Citation

  • Marianne Baxter, 2011. "International Risk Sharing in the Short Run and in the Long Run," NBER Working Papers 16789, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16789
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    References listed on IDEAS

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    1. 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.
    2. Robert P. Flood & Nancy P. Marion & Akito Matsumoto, 2012. "International risk sharing during the globalization era," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 394-416, May.
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    Cited by:

    1. Martin Schmitz, 2013. "Financial Markets And International Risk Sharing In Emerging Market Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 18(3), pages 266-277, July.
    2. Devereux, Michael B. & Kollmann, Robert, 2012. "International Risk Sharing," MPRA Paper 70129, University Library of Munich, Germany.
    3. Holinski, Nils & Kool, Clemens J.M. & Muysken, Joan, 2012. "The impact of international portfolio composition on consumption risk sharing," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1715-1728.
    4. Rabanal, Pau & Rubio-Ramírez, Juan F., 2015. "Can international macroeconomic models explain low-frequency movements of real exchange rates?," Journal of International Economics, Elsevier, vol. 96(1), pages 199-211.
    5. Heathcote, Jonathan & Perri, Fabrizio, 2014. "Assessing International Efficiency," Handbook of International Economics, Elsevier.
    6. repec:eee:hapoch:v1_179 is not listed on IDEAS
    7. Kim, H. Youn, 2014. "International financial integration and risk sharing among countries: A production-based approach," Journal of the Japanese and International Economies, Elsevier, vol. 31(C), pages 16-35.

    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F2 - International Economics - - International Factor Movements and International Business
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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