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Asymmetric volatility spillovers and consumption risk-sharing

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  • Jorge M. Uribe
  • Helena Chuliá

Abstract

Recent studies show that international financial integration facilitates cross-country consumption risk-sharing. We extend this line of research and demonstrate that breaking financial integration down into good and bad integration is important. We also propose new measures of capital market integration, based on good and bad volatility shocks, as well as country-specific indices of consumption risk-sharing. We document a decoupling of individual consumption growth from global risk-sharing after episodes of bad volatility cross-spillovers, and a recoupling after good spillovers. Our results support current views in the literature that advocate an asymmetric treatment of good and bad volatility shocks, in order to assess the macroeconomic dynamics that follow risk episodes. They also challenge previous views that present capital market integration (without differentiating between good and bad shocks) as a prerequisite for higher international consumption risk-sharing. Overall, our outcomes cast some doubt on the actual scope for consumption risk-sharing across global financial markets.

Suggested Citation

  • Jorge M. Uribe & Helena Chuliá, 2021. "Asymmetric volatility spillovers and consumption risk-sharing," Applied Economics, Taylor & Francis Journals, vol. 53(35), pages 4100-4117, July.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:35:p:4100-4117
    DOI: 10.1080/00036846.2021.1897073
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    Cited by:

    1. Jose E. Gomez-Gonzalez & Jorge M. Uribe & Oscar M. Valencia, 2023. "Risk spillovers between global corporations and Latin American sovereigns: global factors matter," Applied Economics, Taylor & Francis Journals, vol. 55(13), pages 1477-1496, March.
    2. Uribe, Jorge M. & Mosquera-López, Stephania & Arenas, Oscar J., 2022. "Assessing the relationship between electricity and natural gas prices in European markets in times of distress," Energy Policy, Elsevier, vol. 166(C).

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