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

A. Patrick Minford, Zhirong Ou and Zheyi Zhu

No 15550, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We revisit the evidence on consumer risk-pooling and uncovered interest parity. Widely used single equation 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 find 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)
Date: 2020-12
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-mac, nep-opm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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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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