In this paper we examine the implications of international risk sharing among a set of countries in the presence of market frictions which complicate the instantaneous adjustment to the first-order conditions. We suggest approximating the consumption streams of countries belonging to the risk sharing coalition in terms of a disequilibrium dynamic model embodying forward-looking adjustment. Econometric methods for estimating and testing the model are discussed. Empirical analysis of a set of core European countries suggests that once preference parameters are allowed to vary across countries, we are able to identify a group of nations that share risks against idiosyncratic permanent income shocks. The equilibrium position, however, is reached after a long adjustment period.
International dynamic risk sharing / Cavaliere G; Fanelli L; Gardini A. - In: JOURNAL OF APPLIED ECONOMETRICS. - ISSN 0883-7252. - STAMPA. - 23:(2008), pp. 1-16. [10.1002/jae.968]
International dynamic risk sharing
CAVALIERE, GIUSEPPE;FANELLI, LUCA;GARDINI, ATTILIO
2008
Abstract
In this paper we examine the implications of international risk sharing among a set of countries in the presence of market frictions which complicate the instantaneous adjustment to the first-order conditions. We suggest approximating the consumption streams of countries belonging to the risk sharing coalition in terms of a disequilibrium dynamic model embodying forward-looking adjustment. Econometric methods for estimating and testing the model are discussed. Empirical analysis of a set of core European countries suggests that once preference parameters are allowed to vary across countries, we are able to identify a group of nations that share risks against idiosyncratic permanent income shocks. The equilibrium position, however, is reached after a long adjustment period.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.