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Author: Karen K. Lewis
Publisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 60
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Book Description
Standard theoretical models predict that domestic residents should diversify their portfolios into foreign assets much more than observed in practice. Whether this lack of diversification is important depends upon the potential gains from risk-sharing. General equilibrium models and consumption data tend to find that the costs are small, typically less than «% of permanent consumption. On the other hand, stock returns imply gains that are several hundred times larger. In this paper, I examine the reasons for these differences. I find that the primary differences are due to either: (a) the much higher variability of stocks, and/or (b) the higher degree of risk aversion required to reconcile an international equity premium. On the other hand, the significant differences do not arise treating stock returns as exogenous.
Author: Karen K. Lewis
Publisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 60
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Book Description
Standard theoretical models predict that domestic residents should diversify their portfolios into foreign assets much more than observed in practice. Whether this lack of diversification is important depends upon the potential gains from risk-sharing. General equilibrium models and consumption data tend to find that the costs are small, typically less than «% of permanent consumption. On the other hand, stock returns imply gains that are several hundred times larger. In this paper, I examine the reasons for these differences. I find that the primary differences are due to either: (a) the much higher variability of stocks, and/or (b) the higher degree of risk aversion required to reconcile an international equity premium. On the other hand, the significant differences do not arise treating stock returns as exogenous.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Sylvester C. W. Eijffinger
Publisher:
ISBN:
Category : Country risk
Languages : en
Pages : 36
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Book Description
We argue that since there are several impediments to international risk sharing, the welfare fains 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 in permanent consumption). Marginal benefits from further risk sharing are low, which indicates that feasible risk sharing can achieve most of the benefits from international risk 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.
Author: Karen K. Lewis
Publisher:
ISBN:
Category :
Languages : en
Pages : 30
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Author: Malin Gardberg
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Complete financial markets allow countries to share their consumption risks internationally, thereby creating welfare gains through lower volatility of aggregate consumption. This paper empirically looks at international consumption risk sharing and its determinants in a panel of 120 countries from 1970 to 2014. Contrary to some previous studies, I show that financial liberalization and financial integration has a significantly positive impact on international consumption risk sharing in poorer developing countries, whereas in emerging market countries only capital account openness has an impact. Moreover, there is some evidence that high income inequality or a high share of low income individuals reduces consumption smoothing in less developed countries. Lack of financial reforms, a lower degree of financial integration and higher inequality can thus partly explain why the degree of risk sharing is lower in developing countries than in advanced economies.
Author: Soyoung Kim
Publisher: 대외경제정책연구원
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 54
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Author: Maurice Obstfeld
Publisher:
ISBN:
Category : Economic development
Languages : en
Pages : 70
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Author: Chue Timothy K.
Publisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 32
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Author: M. Ayhan Kose
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 48
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Book Description
In theory, one of the main benefits of financial globalization is that it should allow for more efficient international risk sharing. This paper provides a comprehensive empirical evaluation of the patterns of risk sharing among different groups of countries and examines how international financial integration has affected the evolution of these patterns. Using a variety of empirical techniques, we conclude that there is at best a modest degree of international risk sharing, and certainly nowhere near the levels predicted by theory. In addition, only industrial countries have attained better risk sharing outcomes during the recent period of globalization. Developing countries have, by and large, been shut out of this benefit. The most interesting result is that even emerging market economies, which have experienced large increases in cross-border capital flows, have seen little change in their ability to share risk. We find that the composition of flows may help explain why emerging markets have not been able to realize this presumed benefit of financial globalization. In particular, our results suggest that portfolio debt, which has dominated the external liability stocks of most emerging markets until recently, is not conducive to risk sharing.
Author: Jonathan A. Parker
Publisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 13
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Book Description
