Financial integration and consumption risk sharing and smoothing

Yui Suzuki

International Review of Economics & Finance, 2014, vol. 29, issue C, 585-598

Abstract: While paying careful attention to the stochastic properties of income process, this paper tests the joint rational expectation and permanent income hypothesis (RE/PIH) to clarify how and to what degree financial integration delinks national income and consumption. It is shown that both the OECD and the non-OECD countries benefit from financial integration in terms of consumption risk sharing and smoothing. The RE/PIH for the transitory income is not rejected for the OECD countries suggesting full consumption smoothing. Regression results also support the RE/PIH prediction that financial integration delivers even larger increases in consumption responding to positive shocks to income growth.

Keywords: Consumption risk sharing; Consumption smoothing; Financial integration; Permanent income; Transitory income (search for similar items in EconPapers)
JEL-codes: E21 F36 F41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:29:y:2014:i:c:p:585-598

DOI: 10.1016/j.iref.2013.08.005

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