International Consumption Risk Sharing with Incomplete Goods and Asset Markets

Sven Blank

No 4.2, Working Paper / FINESS from DIW Berlin, German Institute for Economic Research

Abstract: Perfect consumption risk sharing requires both, frictionless goods as well as frictionless financial market integration. This project aims at analyzing the consequences of both type of frictions for the allocation of risk across countries in a unified framework. To this end, the theoretical model by Ghironi and Melitz (2005) is extended to allow for international trade in equities. This setup incorporates impediments to international trade in goods and assets. Impulse responses show that the degree of financial market integration and the time horizon considered, substantially alter the extent of consumption risk sharing depending on the nature of the underlying shock.

Keywords: International portfolio choice; consumption risk sharing; trade frictions; financial market frictions (search for similar items in EconPapers)
JEL-codes: F32 F42 (search for similar items in EconPapers)
Pages: 28 p.
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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