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The Feasible Gains from International Risk Sharing

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  • Sylvester Eijffinger
  • Wolf Wagner

Abstract

We argue that since there are several impediments to international risk sharing, the welfare gains from full international risk sharing, which have been the object of analysis in the previous literature, are not suggestive. Instead, we study the gains from feasible risk sharing and find that they are considerable (0:5% increase inpermanent consumption). Marginal benefits from further risk sharing are low, which indicates that feasible risk sharing can achieve most of the benefits from internationalrisk sharing. Surprisingly, we find that sharing short term consumption risk lowers welfare. On the basis of the results we make suggestions on how to improve existing international risk sharing systems.

Suggested Citation

  • Sylvester Eijffinger & Wolf Wagner, 2001. "The Feasible Gains from International Risk Sharing," CESifo Working Paper Series 472, CESifo.
    • Handle: RePEc:ces:ceswps:_472
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    References listed on IDEAS

    as
    1. Fernando Alvarez & Urban J. Jermann, 2004. "Using Asset Prices to Measure the Cost of Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1223-1256, December.
    2. Athanasoulis, Stefano G. & van Wincoop, Eric, 2000. "Growth uncertainty and risksharing," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 477-505, June.
    3. Obstfeld, Maurice, 1994. "Evaluating risky consumption paths: The role of intertemporal substitutability," European Economic Review, Elsevier, vol. 38(7), pages 1471-1486, August.
    4. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-543, June.
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    Cited by:

    1. Elizabeth Asiedu & Yi Jin & Anne Villamil, 2006. "Do lack of transparency and enforcement undermine international risk-sharing?," Annals of Finance, Springer, vol. 2(2), pages 123-140, March.
    2. Gilbert Mbara, 2018. "Risk sharing with gradual financial integration: the Visegrád countries and the euro area," Bank i Kredyt, Narodowy Bank Polski, vol. 49(1), pages 17-44.

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    More about this item

    Keywords

    International risk sharing; welfare gains;

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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