International dynamic risk sharing
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. Copyright © 2008 John Wiley & Sons, Ltd.
Year of publication: |
2008
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Authors: | Cavaliere, Giuseppe ; Fanelli, Luca ; Gardini, Attilio |
Published in: |
Journal of Applied Econometrics. - John Wiley & Sons, Ltd.. - Vol. 23.2008, 1, p. 1-16
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Publisher: |
John Wiley & Sons, Ltd. |
Saved in:
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