Traded and nontraded goods prices, and international risk sharing: an empirical investigation
Giancarlo Corsetti (),
Luca Dedola () and
Francesca Viani ()
No 8613, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Accounting for the pervasive evidence of limited international risk sharing is an important hurdle for open-economy models, especially when these are adopted in the analysis of policy trade-offs likely to be affected by imperfections in financial markets. Key to the literature is the evidence, at odds with efficiency, that consumption is relatively high in countries where its international relative price (the real exchange rate) is also high. We reconsider the relation between cross-country consumption differentials and real exchange rates, by decomposing it into two components, reflecting the prices of tradable and nontradable goods, respectively. We document that, as a common pattern among OECD countries, both components tend to contribute to the overall lack of risk sharing, with the tradable price component playing the dominant role in accounting for efficiency deviations. We relate these findings to two mechanisms proposed by the literature to reconcile open economy models with the data. One features strong Balassa-Samuelson effects on nontradable prices due to productivity gains in the tradable sector, with a muted offsetting response of tradable prices. The other, endogenous income effects causing nontradable but especially tradable prices to appreciate with a rise in domestic consumption demand.
Keywords: consumption-real exchange rate anomaly; Harrod-Balassa-Samuelson effect; incomplete markets; international transmission mechanism; terms of trade (search for similar items in EconPapers)
JEL-codes: F41 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cis and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at email@example.com
Journal Article: Traded and Nontraded Goods Prices, and International Risk Sharing: An Empirical Investigation (2012)
Working Paper: Traded and nontraded goods prices, and international risk sharing: an empirical investigation (2012)
Chapter: Traded and Nontraded Goods Prices, and International Risk Sharing: An Empirical Investigation (2011)
Working Paper: Traded and Nontraded Goods Prices, and International Risk Sharing: an Empirical Investigation (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:8613
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=8613
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().