Most of the international macro models, in contrast to the data, imply a very high level of risk sharing across countries and very low real exchange rate (RER) volatility relative to output. In this paper we show that a standard two-country two-good model augmented with conintegrated TFP...

We use a factor model with stochastic volatility to decompose the time-varying variance of Macro economic and Financial variables into contributions from country-specific uncertainty and uncertainty common to all countries. We find that the common component plays an important role in driving the...

We investigate empirically how industrialized countries and U.S. states share consumption risk at horizons between one and thirty years. U.S. federal states share about 50 percent of their permanent idiosyncratic risk through cross-state capital income flows. While insurance against transitory...