Is there consumer risk-pooling in the open economy? The evidence reconsidered

A. Patrick Minford, Zhirong Ou and Zheyi Zhu ()
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Zheyi Zhu: Cardiff Business School

No E2020/12, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We revisit the evidence on consumer risk-pooling and uncovered interest parity. Widely used singleequation tests are strongly biased against both. Using the full-model, Indirect Inference test, which is unbiased and has Goldilocks power by Monte Carlo experiments, we nd that both the risk-pooling hypothesis and its weaker UIP version are generally accepted as part of a full world DSGE model.The fact that the risk-pooling hypothesis, with its implication of strong cross-border consumer linkage,has passed this test with generally the highest p-value, suggests that it deserves serious attention from policy-makers looking for a relevant model to discuss international monetary and other business cycle issues.

Keywords: Open economy; consumer risk-pooling; UIP; full-model test; Indirect Inference (search for similar items in EconPapers)
JEL-codes: C12 E12 F41 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2020-10
New Economics Papers: this item is included in nep-mac and nep-opm
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Related works:
Journal Article: Is there Consumer Risk-Pooling in the Open Economy? The Evidence Reconsidered (2022)
Working Paper: Is there consumer risk-pooling in the open economy? The evidence reconsidered (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2020/12

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