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Debt Crises and Risk Sharing: The Role of Markets versus Sovereigns

  • Sebnem Kalemli-Ozcan
  • Emiliano E. Luttini
  • Bent Sorensen

Using a variance decomposition of shocks to GDP, we quantify the role of international factor income, international transfers, and saving in achieving risk sharing during the recent European crisis. We focus on the sub-periods 1990-2007, 2008-2009, and 2010 and consider separately the European countries hit by the sovereign debt crisis in 2010. We decompose risk sharing from saving into contributions from government and private saving and show that fiscal austerity programs played an important role in hindering risk sharing during the sovereign debt crisis.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19914.

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Date of creation: Feb 2014
Date of revision:
Publication status: published as Sebnem Kalemli-Ozcan & Emiliano Luttini & Bent Sørensen, 2014. "Debt Crises and Risk-Sharing: The Role of Markets versus Sovereigns," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(1), pages 253-276, 01.
Handle: RePEc:nbr:nberwo:19914
Note: IFM
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  1. Bent E. S�rensen & Oved Yosha, 1998. "International Risk Sharing and European Monetary Unification," Temi di discussione (Economic working papers) 327, Bank of Italy, Economic Research and International Relations Area.
  2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
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  4. Huizinga,Harry & Jonung,Lars (ed.), 2005. "The Internationalisation of Asset Ownership in Europe," Cambridge Books, Cambridge University Press, number 9780521852951, October.
  5. Eric Van Wincoop, 1998. "How big are potential welfare gains from international risksharing?," Staff Reports 37, Federal Reserve Bank of New York.
  6. 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.
  7. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  8. Maurice Obstfeld, 1993. "Are Industrial-Country Consumption Risks Globally Diversified?," NBER Working Papers 4308, National Bureau of Economic Research, Inc.
  9. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 1999. "What Drives Private Saving Across the World?," Working Papers Central Bank of Chile 47, Central Bank of Chile.
  10. 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.
  11. Reinhart, Carmen, 2009. "The Second Great Contraction," MPRA Paper 21485, University Library of Munich, Germany.
  12. 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.
  13. Bent E. Sørensen & Maria Jose Luengo-Prado, 2005. "What Can Explain Excess Smoothness and Sensitivity of State-Level Consumption?," Working Papers 2005-03, Department of Economics, University of Houston.
  14. 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.
  15. Robert J. Barro, 1999. "Notes on Optimal Debt Management," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 281-289, November.
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