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Low Risk Sharing with Many Assets

Author

Listed:
  • Emile A. Marin
  • Sanjay R. Singh

    (Department of Economics, University of California Davis)

Abstract

Classical contributions in international macroeconomics reconcile low international risk sharing by generating a non-traded component to exchange rates. However, when there is cross-border trade in just one domestic and one foreign-currency-denominated risk-free asset, such price movements are ruled out by no-arbitrage restrictions. Allowing for within-country heterogeneity in stochastic discount factors, we recover low risk-sharing even with cross-border trade in two risk-free assets, as long as heterogeneity increases when exchange rates depreciate.

Suggested Citation

  • Emile A. Marin & Sanjay R. Singh, 2023. "Low Risk Sharing with Many Assets," Working Papers 361, University of California, Davis, Department of Economics.
    • Handle: RePEc:cda:wpaper:361
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    international risk sharing; incomplete financial markets; exchange rates; heterogeneous agents;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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