 International risk sharing with endogenously segmented asset marketsSimona Cociuba () and Ananth Ramanarayanan () Journal of International Economics, 2019, vol. 117, issue C, 61-78 Abstract: Asset price data imply a large degree of international risk sharing, while aggregate consumption data do not. We show that a model with trade in goods and endogenously segmented asset markets can account for this puzzling discrepancy. Active households—who pay a fixed cost to transfer money into or out of assets—share risk within and across countries, and their marginal utility growth prices assets, so asset prices imply high risk sharing. Inactive households consume their current income and do not share risk, so aggregate consumption (which averages across all households) reflects lower risk sharing. The model also provides a resolution to the Backus-Smith-Kollmann puzzle. Keywords: International risk sharing; Real exchange rates; Segmented asset markets; Limited asset market participation; Consumption-real exchange rate anomaly; Backus-Smith-Kollmann puzzle (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:117:y:2019:i:c:p:61-78 DOI: 10.1016/j.jinteco.2018.12.003 Access Statistics for this article Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, Andrés More articles in Journal of International Economics from Elsevier |
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