International Risk Sharing and the Transmission of Productivity Shocks

Corsetti, Giancarlo; Dedola, Luca; Leduc, Sylvain

doi:10.1111/j.1467-937x.2008.00475.x

Cited by 487 publications

(220 citation statements)

References 46 publications

Supporting

Mentioning

206

Contrasting

Unclassified

Order By: Relevance

“…Baxter and Crucini (1995) have demonstrated that the equilibria in complete market economies are almost identical to those of a bonds-only economy, unless shocks get very persistent. As argued by Corsetti, Dedola and Leduc (2004), it may therefore be rather di¢ cult to generate realistic correlations between real exchange rates and consumption through market incompleteness alone. 16 …”

Section: 5mentioning

confidence: 99%

See 1 more Smart Citation

The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?

Hoffmann

2007

Open Econ Rev

View full text Add to dashboard Cite

The bulk of evidence on the lack of international risk sharing is based on regressions of idiosyncratic consumption growth on idiosyncratic output growth. This paper argues that the results from such regressions obtained from international data are, however, not directly comparable to those based on regional data: the standard practice of running such regressions on international data fails to account for persistent international differentials in consumer prices, whereas -implicitly -most of the literature based on regional data has accounted for these differences. When risk sharing regressions are set up in conceptually the same way in international and regional data sets, the estimated coefficients are also very similar. To explore this result further, we adapt the variance decomposition of Asdrubali Sørensen and Yosha (QJE 1996) to allow for deviations from purchasing power parity across countries. While quantity (income and credit) flows are the dominant channel of risk sharing among regions, relative consumption and output price (internal terms of trade) fluctuations account for the bulk of the deviation from the complete markets outcome in international data. To the extent that persistent differences in consumer prices are an indication of goods market segmentation, our findings provide empirical evidence for the proposition by Obstfeld and Rogoff (2000) that segmented international goods markets rather than asset market incompleteness may account for the (apparent) lack of risk sharing between countries. AbstractThe bulk of evidence on the lack of international risk sharing is based on regressions of idiosyncratic consumption growth on idiosyncratic output growth. This paper argues that the results from such regressions obtained from international data are, however, not directly comparable to those based on regional data: the standard practice of running such regressions on international data fails to account for persistent international di¤erentials in consumer prices, whereas -implicitly -most of the literature based on regional data has accounted for these di¤erences. When risk sharing regressions are set up in conceptually the same way in international and regional data sets, the estimated coe¢ cients are also very similar. To explore this result further, we adapt the variance decomposition of Asdrubali Sørensen and Yosha (QJE 1996) to allow for deviations from purchasing power parity across countries. While quantity (income and credit) ‡ows are the dominant channel of risk sharing among regions, relative consumption and output price (internal terms of trade) ‡uctuations account for the bulk of the deviation from the complete markets outcome in international data. To the extent that persistent di¤er-ences in consumer prices are an indication of goods market segmentation, our …ndings provide empirical evidence for the proposition by Obstfeld and Rogo¤ (2000) that segmented international goods markets rather than asset market incompleteness may account for the (apparent) lack of risk sharing...

show abstract

Section: 5mentioning

confidence: 99%

“…For example, this is the procedure followed by the U.S. Bureau of Economic Analysis. 7 Hence, the price used to value e.g. oil production is the same across all U.S. states.…”

Section: Common Vs Country-speci…c Consumption De ‡A-torsmentioning

confidence: 99%

The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?

Hoffmann

2007

Open Econ Rev

View full text Add to dashboard Cite

show abstract

“…These results are typically based on the assumption that shocks correlate across countries. For instance, Corsetti et al (2008) nd that the positive correlation of output across countries arises mainly because of the positive correlation of innovation shocks across countries. This paper demonstrates that a combination of dollar pricing and a low cross-country substitutability can explain a stylized fact in case of a unilateral U.S. monetary shock.…”

Section: S Monetary Policy Under Exible Exchange Ratesmentioning

confidence: 99%

China, the Dollar Peg and U.S. Monetary Policy

Tervala

2014

SSRN Journal

View full text Add to dashboard Cite

I examine the transmission of expansionary U.S. monetary policy in case where developing countries--including China--peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as under a flexible exchange rate. The value of the dollar peg is positive for the dollar bloc because the U.S. can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. If the expenditure switching effect is weak, the peg is harmful to the U.S., providing a rationale for criticism of China's exchange rate policy.JEL Classification: E32, E52, F30, F41, F44

show abstract

“…Similarly for G D t . 19 Some recent studies highlight the consequences of ω < 1 (for instance, Bodenstein, 2006, andCorsetti, Dedola, andLeduc, 2008). However, the combined trade and macroeconomic evidence still leans toward ω > 1 as the most empirically relevant scenario, with ω = 1 a limiting case.…”

Section: A First-order Portfolio Adjustment and Valuationmentioning

confidence: 99%

The valuation channel of external adjustment

Ghironi

Lee

Rebucci³

2015

Journal of International Money and Finance

View full text Add to dashboard Cite

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.International financial integration has greatly increased the scope for changes in a country's net foreign asset position through the valuation channel, namely capital gains and losses on external assets and liabilities. We examine this valuation channel in a dynamic equilibrium portfolio model with international trade in equity. By separating asset prices and quantities, we can characterize the first-order dynamics of valuation effects and the current account in macroeconomic dynamics. Specifically, we disentangle the roles of excess returns, capital gains, and portfolio adjustment for consumption risk sharing when financial markets are incomplete. JEL Classification Numbers: F32; F41; G11; G15

show abstract

International Risk Sharing and the Transmission of Productivity Shocks

Cited by 487 publications

References 46 publications

The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?

The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?

China, the Dollar Peg and U.S. Monetary Policy

The valuation channel of external adjustment

Contact Info

Product

Resources

About