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International Risk Sharing and Wealth Allocation with Higher Order Cumulants

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Listed:
  • Corsetti, G.
  • LipiÅ„ska, A.
  • Lombardo, G.

Abstract

We study how risk sharing affects the macroeconomic allocation, asset prices and welfare. Employing perturbation and global methods, we characterize a global (multi-country) equilibrium in terms of asymmetries in higher-order moments of non-Gaussian shocks and country size. Financial integration has consumption smoothing and wealth level effects. Wealth effects emerge through the revaluation of a country assets and terms of trade— benefiting safer and/or smaller economies. Riskier countries enjoy smoother consumption, but at the expense of lower relative wealth. Although riskier countries gain more, safety command a welfare and financial premium, with welfare differences being near-linear in relative asset prices.

Suggested Citation

  • Corsetti, G. & LipiÅ„ska, A. & Lombardo, G., 2024. "International Risk Sharing and Wealth Allocation with Higher Order Cumulants," Janeway Institute Working Papers 2422, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camjip:2422
    Note: gc422
    as

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    File URL: https://www.janeway.econ.cam.ac.uk/working-paper-pdfs/jiwp2422.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetries in Risk; Consumption Smoothing; Gains from Risk Sharing; Tail risk; Terms of Trade; Wealth Transfers;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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