The Spirit of Capitalism and International Risk Sharing

Timothy K. Chue

No 589, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: We show that a model of the spirit of capitalism can generate a high degree of international risk sharing as measured by the discount-factor-based approach of Brandt, Cochrane, and Santa-Clara (2001), even when consumption and portfolio holdings exhibit "home bias". We also show how portfolio externalities can arise in the model, and highlight the caution that one needs in interpreting discount-factor-based measures of international risk sharing: in the presence of portfolio externalities, even when the measured degree of risk sharing is perfect, it is still possible for government policies to induce investors to hold better-diversified portfolios and attain higher welfare

Keywords: The spirit of capitalism; International risk sharing; Discount factor; Portfolio externality. (search for similar items in EconPapers)
JEL-codes: F41 G11 G15 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:589

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