International Risk Sharing and Land Dynamics

Jean-François Rouillard

Cahiers de recherche from Departement d'économique de l'École de gestion à l'Université de Sherbrooke

Abstract: While business cycles of industrialized countries have become more synchronized in the past decade, the gap between cross-country correlations in output and in consumption, known as the quantity anomaly, has widened on average. A two-country real business cycle model with national endogenous borrowing constraints and frictionless international financial markets can account for these stylized facts that are related to international risk sharing. When preferences are non-separable between consumption and leisure, the borrowing mechanism brings about an internal labor wedge that interacts with the efficient international allocation. This labor wedge is also fundamental to explain the Backus-Smith puzzle or consumption—real-exchange-rate anomaly. Technology shocks contribute to explain international co-movements, whereas country-specific financial shocks to borrowing capacity allow the model to replicate the lack of international risk sharing. When the model is augmented with an additional sector, real estate, international co-movements are matched more closely.

Keywords: international risk sharing; real estate dynamics; borrowing constraints; labor wedge; financial shocks (search for similar items in EconPapers)
JEL-codes: E44 F34 F44 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2013-05
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1302.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:shr:wpaper:13-02

Access Statistics for this paper

More papers in Cahiers de recherche from Departement d'économique de l'École de gestion à l'Université de Sherbrooke Contact information at EDIRC.
Bibliographic data for series maintained by Jean-François Rouillard ().