Testing Full Consumption Insurance in the Frequency Domain

Paulo Santos Monteiro

No 269910, Economic Research Papers 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: Public Economics; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 32
Date: 2008-10-24
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269910

DOI: 10.22004/ag.econ.269910

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