International Risk Sharing and Wealth Allocation with Higher Order Cumulants

Giancarlo Corsetti, Anna Lipinska and Giovanni Lombardo

No 19425, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study how risk sharing affects the macroeconomic allocation, asset prices and welfare. Employing perturbation and global methods, we characterize a global (multi-country) equilibrium in terms of asymmetries in higher-order moments of non-Gaussian shocks and country size. Financial integration has consumption smoothing and wealth level effects. Wealth effects emerge through the revaluation of a country assets and terms of trade--- benefiting safer and/or smaller economies. Riskier countries enjoy smoother consumption, but at the expense of lower relative wealth. Although riskier countries gain more, safety command a welfare and financial premium, with welfare differences being near-linear in relative asset prices.

JEL-codes: F15 F41 G15 (search for similar items in EconPapers)
Date: 2024-09
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