Testing Full Consumption Insurance in the Frequency Domain

Paulo Santos Monteiro
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Paulo Santos Monteiro: University of Warwick

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Full consumption insurance implies that consumers are able to perfectly share risk by equalizing state by state their inter-temporal marginal rates of substitution in the presence of idiosyncratic endowment shocks. In this paper I test the implications of full consumption insurance using band spectrum regression methods. I argue that moving to the frequency domain provides a possible solution to many difficulties tied to tests of perfect risk sharing. In particular, it provides a unifying framework to test consumption smoothing, both over time and across states of nature. Full consumption insurance is soundly rejected at business cycle frequencies.

Keywords: Consumption insurance; Idiosyncratic risk; Frequency domain (search for similar items in EconPapers)
JEL-codes: D1 E21 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008
New Economics Papers: this item is included in nep-ecm, nep-ias and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:874

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