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International Consumption Risk Sharing

Fabio Canova and Morten Ravn

No 1074, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines whether or not consumption risk sharing occurs in a panel of industrialized countries. We derive the international consumption insurance proposition in a simple theoretical model and show how it should be modified in more complicated models. We analyse empirically the implications of the proposition for pairs of countries over cycles of different length, and find that aggregate domestic consumption is completely insured against idiosyncratic real, demographic, fiscal and monetary shocks, but that it co-varies with domestic variables over long or infinite cycles. Also, the cross equation restrictions imposed by the theory are, in general, rejected. The policy implications of the results are discussed.

Keywords: Capital Mobility; Consumption Insurance; International Investments; Long Run Convergence (search for similar items in EconPapers)
JEL-codes: D81 E32 F21 (search for similar items in EconPapers)
Date: 1994-12
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: International Consumption Risk Sharing (1996)
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