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.

Cavaliere G, Fanelli L, Gardini A (2008). International dynamic risk sharing. JOURNAL OF APPLIED ECONOMETRICS, 23, 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.
2008
Cavaliere G, Fanelli L, Gardini A (2008). International dynamic risk sharing. JOURNAL OF APPLIED ECONOMETRICS, 23, 1-16 [10.1002/jae.968].
Cavaliere G; Fanelli L; Gardini A
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/56397
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