International Risk Sharing in the EMU

Alessandro Ferrari and Anna Rogantini Picco

Working Papers from European Stability Mechanism

Abstract: This paper aims at empirically assessing the effect of the adoption of the euro on the ability of euro area member states to smooth consumption and share risk. With the objective of evaluating the economic performance of euro area countries in the scenario where the euro had not been adopted, we construct a counterfactual dataset of macroeconomic variables via the Synthetic Control Method. In order to get some preliminary measures of risk sharing, we first compute bilateral consumption correlations and Brandt-Cochrane- Santa Clara Indexes across euro area member states. We then decompose risk sharing in different channels by means of the Asdrubali, Sorensen and Yosha (1996) output decomposition. Our preliminary measures and our decomposition of risk sharing are computed with both actual and synthetic data so as to identify whether there has been any effect of the adoption of the euro on risk sharing and through which channels it has occurred. We find that the euro has not affected the level of risk sharing across euro area countries, but has partially reduced the ability of member states to smooth consumption. We attribute this change to the higher GDP growth generated by the adoption of the euro, which has been accompanied by a greater output volatility. We also report differential effects for core and periphery countries, showing that the former have not suffered any negative effects from the adoption of the euro in terms of risk sharing.

Keywords: Risk Sharing Mechansims; Consumption Smoothing Channels; Euro Area; Synthetic Control Method (search for similar items in EconPapers)
JEL-codes: F32 F36 F41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016-07-20
New Economics Papers: this item is included in nep-eec and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published

Downloads: (external link)
https://www.esm.europa.eu/sites/default/files/document/wp17final.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found

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:stm:wpaper:17

Access Statistics for this paper

More papers in Working Papers from European Stability Mechanism Contact information at EDIRC.
Bibliographic data for series maintained by Karol SISKIND ().