Risky Habits : On Risk Sharing, Habit Formation, and the Interpretation of International Consumption Correlations
Jeffrey C. Fuhrer, Michael W. Klein
Standard international economic models with life cycle/permanent income consumption behavior predict that international portfolio diversification leads to high bilateral consumption correlations. Thus international consumption correlations have been empirically estimated as a test of international portfolio diversification and risk sharing. In this paper we investigate the international consumption correlations generated by a more general model which incorporates habit formation in consumption. We show that, in the presence of common interest rate movements, habit formation itself can generate positive international consumption correlations even in the absence of any international risk sharing. Empirical evidence presented in this paper suggests habit formation characterizes consumption behavior among most of the G-7 countries. Thus, the extent of international portfolio diversification may be even lower than that suggested by previous research which studied international consumption correlations
Year of publication: |
September 1998
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Authors: | Fuhrer, Jeffrey C. |
Other Persons: | Klein, Michael W. (contributor) |
Institutions: | National Bureau of Economic Research (contributor) |
Publisher: |
Cambridge, Mass : National Bureau of Economic Research |
Subject: | Theorie | Theory | Konsumentenverhalten | Consumer behaviour | Risiko | Risk | Privater Konsum | Private consumption | Einkommenshypothese | Income hypothesis | G7-Staaten | G7 countries | Portfolio-Investition | Foreign portfolio investment |
Saved in:
freely available
Extent: | 1 Online-Ressource |
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Series: | NBER working paper series ; no. w6735 |
Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Mode of access: World Wide Web System requirements: Adobe [Acrobat] Reader required for PDF files Hardcopy version available to institutional subscribers. |
Other identifiers: | 10.3386/w6735 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012472079