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International Consumption Risk Sharing

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  • Canova, Fabio
  • Ravn, Morten O

Abstract

This paper formally examines the implications of international consumption risk sharing for a panel of industrialized countries. The authors theoretically derive the international consumption insurance proposition in a simple setup and show how to modify it in more complicated models. They analyze the implications of the theory for pairs of countries and find that aggregate domestic consumption is almost completely insured against idiosyncratic real, demographic, fiscal, and monetary shocks over short cycles but that it covaries with these variables over medium and long cycles. The cross equation restrictions imposed by the theory are rejected. The policy implications are discussed. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • 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.
    • Handle: RePEc:ier:iecrev:v:37:y:1996:i:3:p:573-601
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    References listed on IDEAS

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    1. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
    2. Andrew Atkeson & Tamim Bayoumi, 1993. "Do private capital markets insure regional risk? Evidence from the United States and Europe," Open Economies Review, Springer, vol. 4(3), pages 303-324, September.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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