Incomplete Intertemporal Consumption Smoothing and Incomplete Risk Sharing

Abstract

This paper develops a method to estimate jointly the degree of intertemporal consumption smoothing and the degree of "inter-regional" risk sharing. The empirical results for the U.S. states and OECD and EU countries suggest that: (i) regardless of the assumption on the degree of intertemporal consumption smoothing, the degree of risk sharing within a country is larger than across countries; (ii) the degree of intertemporal consumption smoothing within a country is also larger than across countries; and (iii) the difference between the degree of intertemporal consumption smoothing within U.S. states and across OECD and EU countries is as large as the difference between the degree of risk sharing, contrary to the findings of some past studies. Copyright (c) 2008 The Ohio State University.

Today Versus tomorrow: The Sensitivity of the Non-Oil Current Account Balance to Permanent and Current Income

“…This is a similar coefficient to that found for Canadian consumers (Bayoumi and Klein, 1997). It is also in the middle of the results in Asdrubali and Kim (2007), which are 74 percent for the United States, but only 34 percent for the European Union and 28 percent for the OECD as a whole. For African countries, movements in the oil balance have a one to one impact on the non-oil current account and the return on oil wealth has no effect-only current income matters.…”

Common correlated effects and international risk sharing

“…It is important to remember that the correlation between consumption and income is also a measure of intertemporal consumption smoothing. Asdrubali and Kim () and Ho, Ho, and Li () analysed risk sharing and intertemporal smoothing jointly where γ captures the extent of risk sharing and ω captures the extent of intertemporal smoothing, while still reveals the impact of income shocks on consumption . Notice that Equation does not contain pooled income, , as a control variable, and all coefficients are ‘global’, without an i subscript.…”

“…In line with most of this literature, we refer to β as a measure of risk sharing, but in the framework proposed by Asdrubali and Kim () β can be interpreted as a joint measure of risk sharing and intertemporal smoothing.…”

Would Australia–new Zealand Be a Viable Currency Union? Evidence From Interstate Risk‐sharing Performances

“…Intertemporal macroeconomic theory suggests that under standard assumptions, countries (like individuals) smooth their consumption across time against output fluctuations. Intertemporal smoothing is typically done through domestic saving and dissaving in a closed economy, and through foreign borrowing and lending in an open economy setup (Asdrubali and Kim , ).…”