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Incomplete Intertemporal Consumption Smoothing and Incomplete Risksharing

  • Pierfederico Asdrubali
  • Soyoung Kim

This paper develops a method to estimate jointly the degree of (possibly incomplete) intertemporal consumption smoothing and the degree of (possibly incomplete) international/interregional risksharing. This approach generalizes and improves upon studies that either examine only intertemporal consumption smoothing, or analyze risksharing by making an extreme assumption on intertemporal consumption smoothing, or by adopting a purely empirical framework. The method is applied to the US states and OECD and EU countries to analyze how the degrees of risksharing and intertemporal consumption smoothing differ within a country and across countries. The empirical results suggest that: 1) regardless of the assumption on the degree of intertemporal consumption smoothing, the degree of risksharing within a country is larger than across countries 2) the degree of intertemporal consumption smoothing within a country is also larger than across countries, contrary to the findings of past channel studies. Finally, this paper also provides some foundations and suggests limitations of the empirical literature on channels of risksharing and intertemporal consumption smoothing.

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Paper provided by EconWPA in its series International Finance with number 0506010.

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Length: 19 pages
Date of creation: 23 Jun 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0506010
Note: Type of Document - pdf; pages: 19
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