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Risk Sharing in Europe: New Empirical Evidence on the Capital Markets Channel

Gilles Dufrénot (), Jean-Baptiste Gossé and Clerc Caroline

Working papers from Banque de France

Abstract: This paper assesses the effectiveness of risk sharing mechanisms in Europe by breaking down the factor income components into their sub-components, and aims to further examine whether financial integration and international portfolio diversification boosts or dampens risk sharing. Using a panel of European countries, we compare the years before and after the 2008 financial crisis. We extend the literature by properly taking into account the heterogeneity (in both country and time dimensions) in the panel through new econometric models. Our results show that financial income has become a major channel of risk sharing in recent years and that a higher integration in the bond and equity markets significantly improves risk sharing in the long term.

Keywords: Euro Area; Risk Sharing; Financial Integration; Cross-Sectional Dependence. (search for similar items in EconPapers)
JEL-codes: C23 C51 E21 F36 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2020
New Economics Papers: this item is included in nep-eec, nep-mac and nep-ore
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https://publications.banque-france.fr/sites/defaul ... ocuments/wp781_0.pdf

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Journal Article: Risk sharing in Europe: new empirical evidence on the capital markets channel (2021) Downloads
Working Paper: Risk sharing in Europe: new empirical evidence on the capital markets channel (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:781

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