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Channels of Interstate Risksharing: U.S. 1963-1990

Author

Listed:
  • Asdrubali, P.
  • Sorensen, B.E.
  • Yosha, O.

Abstract

We develop a framework for quantifying the amount of risksharing among states in the US, and construct data which allow us to decompose a shock to gross state product into several components. For the period 1963-1990 we find that 40% of shocks to state gross domestic product are smoothed by capital markets, 14% are smoothed by the federal government, and 24% are smoothed by credit markets. The remaining 22% are not smoothed. We decompose the federal government smoothing into sub-categories: taxes, transfers, and grants to states, finding, for example, that in comparision to the tax-transfer system, the magnitude of smoothing through the grant system is small (2.7% of a shock), and that the unemployment insurance system smoothes 1.8% of a shock. Finally, we repeat the analysis for two sub-periods, finding that the amount and composition of federal government smoothing is stable through time. However, we detect an increase in the amount of capital markets smoothing, a sharp decrease in the amount of credit market smoothing, and a decrease in the overall fraction of a shock smoothed.
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Suggested Citation

  • Asdrubali, P. & Sorensen, B.E. & Yosha, O., 1995. "Channels of Interstate Risksharing: U.S. 1963-1990," Papers 07-95, Tel Aviv.
    • Handle: RePEc:fth:teavfo:07-95
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    Cited by:

    1. Hess, Gregory D. & Shin, Kwanho, 2010. "Understanding the Backus-Smith puzzle: It's the (nominal) exchange rate, stupid," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 169-180, February.
    2. repec:zbw:bofrdp:1997_008 is not listed on IDEAS
    3. Jääskelä, Jarkko, 1997. "Incomplete insurance market and its policy implication within European Monetary Union," Research Discussion Papers 8/1997, Bank of Finland.
    4. Mr. Roel M. W. J. Beetsma & Mr. Xavier Debrun & Mr. Franc Klaassen, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," IMF Working Papers 2001/178, International Monetary Fund.
    5. Robert P. Flood & Nancy P. Marion & Akito Matsumoto, 2012. "International risk sharing during the globalization era," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 394-416, May.
    6. Pagano, Marco & Jappelli, Tullio, 2008. "Financial Market Integration Under EMU," CEPR Discussion Papers 7091, C.E.P.R. Discussion Papers.
    7. Asdrubali, Pierfederico & Kim, Soyoung, 2008. "On the empirics of international smoothing," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 374-381, March.
    8. Philip R. Lane, 2000. "International Diversification and the Irish Economy," The Economic and Social Review, Economic and Social Studies, vol. 31(1), pages 37-53.
    9. Ridhwan, M.M. & Nijkamp, P. & Rietveld, P., 2008. "Regional development and monetary policy : a review of the role of monetary unions, capital mobility and locational effects," Serie Research Memoranda 0007, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    10. S. Bucovetsky, 1997. "Insurance and Incentive Effects of Transfers among Regions: Equity and Efficiency," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(4), pages 463-483, November.

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