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Enhancing private and public risk sharing: lessons from the literature and reflections on the COVID-19 crisis

Jacopo Cimadomo, Esther Gordo Mora and Alessandra Anna Palazzo

No 306, Occasional Paper Series from European Central Bank

Abstract: This article surveys the literature on consumption risk sharing, focusing on the findings for the euro area and for the United States, but also presenting evidence for other countries. The literature examined found that risk sharing is higher in more mature federations, such as the United States, than in the euro area. The papers surveyed suggest that state/country-specific output shocks are primarily smoothed out through the capital and credit channel, whereas the fiscal channel as a minor role, especially in the euro area. Overall, about 70% of shocks is smoothed in the United States while just 40% in the euro area. At the same time, our analysis of the response to the COVID-19 crisis indicates that risk sharing in the euro area has been more resilient than it was during the global financial crisis of 2008-09. Overall, our results point to the need for further improvements to the private and public risk-sharing channels in the euro area to ensure more effective cushioning against asymmetric shocks and to boost progress towards the completion of European Monetary Union (EMU). JEL Classification: C23, E62, G11, G15

Keywords: COVID-19 crisis; EMU reform; Risk sharing (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-ban, nep-eec and nep-opm
Note: 352854
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