Testing for consumer risk-pooling in the open economy - further results

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

No E2023/3, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: In this supplement to Minford et al. (2021), we revisit the 'puzzle' in open economy studies that evidence of international risk-sharing is hardly seen despite active cross-country financial markets. We reassess both risk-pooling via state-contingent bonds, and uncovered interest parity both were believed to be different, and spuriously rejected, in previous work - in the context of a full DSGE model of the New Keynesian type. We prove that the two models are identical, both analytically and numerically.When tested as part of such a full DSGE model by indirect inference which circumvents the bias of single-equation tests, we Önd universal evidence of international risk-sharing.

Keywords: consumer risk-pooling; UIP; two-country DSGE model; indirect inference test (search for similar items in EconPapers)
JEL-codes: C12 E12 F41 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2023-02
New Economics Papers: this item is included in nep-dge and nep-opm
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