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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
    1. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 267-297, April.
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    7. Matteo Maggiori, 2017. "Financial Intermediation, International Risk Sharing, and Reserve Currencies," American Economic Review, American Economic Association, vol. 107(10), pages 3038-3071, October.
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    Full references (including those not matched with items on IDEAS)

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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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