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Common correlated effects and international risk sharing

Author

Listed:
  • Peter Fuleky

    (UHERO, University of Hawaii at Manoa)

  • Luigi Ventura

    (Department of Economics and Law, Sapienza, University of Rome)

  • Qianxue Zhao

    (Department of Economics, University of Hawaii at Manoa)

Abstract

Correct assessment of consumption risk and its international diversification has important policy implications. However, existing studies of international risk sharing rely on the unrealistic assumptions that all economies are characterized by symmetric preferences and uniform transmission of global shocks. We relax these homogeneity constraints and compare our proposed approach with the conventional ones using a 44-year panel of 120 countries. Our results confirm that consumption is only partially smoothed internationally and risk sharing is directly related to the level of development, but we do not detect a significant increase in risk sharing during the surge in financial globalization over the last four decades.

Suggested Citation

  • Peter Fuleky & Luigi Ventura & Qianxue Zhao, 2013. "Common correlated effects and international risk sharing," Working Papers 2017-5R, University of Hawaii Economic Research Organization, University of Hawaii at Manoa, revised May 2017.
    • Handle: RePEc:hae:wpaper:2017-5r
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    Cited by:

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    3. Gilles Dufrénot & Jean-Baptiste Gossé & Caroline Clerc, 2021. "Risk sharing in Europe: new empirical evidence on the capital markets channel," Applied Economics, Taylor & Francis Journals, vol. 53(2), pages 262-276, January.
    4. António Afonso & José Alves & Krzysztof Beck & Karen Jackson, 2022. "Financial, Institutional, and Macroeconomic Determinants of Cross-Country Portfolio Equity Flows," CESifo Working Paper Series 9872, CESifo.
    5. Alper Yılmaz, 2023. "Carbon emissions effect of trade openness and energy consumption in Sub-Saharan Africa," SN Business & Economics, Springer, vol. 3(2), pages 1-28, February.
    6. Malin Gardberg, 2016. "Determinants of International Consumption Risk Sharing in Emerging Markets and Developing Countries," EcoMod2016 9452, EcoMod.
    7. Beck, Krzysztof & Yersh, Valeryia, 2024. "Economic integration and consumption risk sharing: A comparison of Eurozone and OECD countries," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 784-803.
    8. Digvijay S. Negi & Christopher B. Barrett, 2024. "Consumption Smoothing, Commodity Markets, and Informal Transfers," Working Papers 116, Ashoka University, Department of Economics.
    9. Gerdie Everaert & Lorenzo Pozzi, 2022. "Encompassing measures of international consumption risk sharing and their link with trade and financial globalization," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(2), pages 433-449, March.

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    More about this item

    Keywords

    International risk sharing; Consumption insurance; Panel data; Cross-sectional dependence; Heterogeneous effects;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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