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International Risk Sharing

Listed author(s):
  • Devereux, Michael B.
  • Kollmann, Robert

According to standard theory, one of the central benefits of international financial markets is the possibility of reducing national consumption risk. A basic measure of risk sharing is hence the degree to which national consumption rates move in unison across countries. In the simplest theoretical model of international financial markets, efficient risk sharing implies that consumption growth in a given country closely tracks world consumption growth. With integrated financial markets, consumption growth should hence be highly correlated across countries--and more highly correlated than output growth. Yet, despite the liberalization of international financial markets and the strong growth in international capital flows during the past few decades, this prediction is sharply at variance with the evidence. Empirically, national consumption closely tracks national output, while cross-country consumption correlations are generally lower than cross-country output correlations. Hence, it would seem that countries are not fully exploiting the welfare benefits of international risk pooling. Documenting the pattern of (incomplete) risk sharing, and understanding the financial frictions at its roots, is thus of great interest for economic research and policy. This special issue of the Canadian Journal of Economics consists of a selection of papers that offer novel empirical and theoretical perspectives on international risk sharing. All papers were presented at a conference on ‘International Risk Sharing’ held at ECARES (Université Libre de Bruxelles), in October 2010.

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File URL: https://mpra.ub.uni-muenchen.de/70129/1/MPRA_paper_70129.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 70129.

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Date of creation: 2012
Handle: RePEc:pra:mprapa:70129
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  1. Faruk Balli & Sebnem Kalemli-Ozcan & Bent E. Sørensen, 2012. "Risk sharing through capital gains," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 472-492, May.
  2. Giancarlo Corsetti & Luca Dedola & Francesca Viani, 2012. "The international risk sharing puzzle is at business cycle and lower frequency," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 448-471, May.
  3. Robert Kollmann, 2012. "Limited asset market participation and the consumption-real exchange rate anomaly," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 566-584, May.
  4. 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.
  5. Mathias Hoffmann & Thomas Nitschka, 2012. "Securitization of mortgage debt, domestic lending, and international risk sharing," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 493-508, May.
  6. 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.
  7. Martin Berka & Mario J. Crucini & Chih-Wei Wang, 2012. "International risk sharing and commodity prices," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 417-447, May.
  8. Gianluca Benigno & Hande Küçük, 2012. "Portfolio allocation and international risk sharing," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 535-565, May.
  9. Michael B. Devereux & Viktoria Hnatkovska, 2012. "The extensive margin, sectoral shares, and international business cycles," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 509-534, May.
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