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Short-term forecasts of euro area GDP growth

Elena Angelini, Gonzalo Camba-Mendez (), Gerhard Rünstler (), Domenico Giannone () and Lucrezia Reichlin ()

No 949, Working Paper Series from European Central Bank

Abstract: Global financial integration unlocks a huge potential for international risk sharing. We examine the degree to which international equity holdings act as a risk sharing device in industrial and emerging economies. We split equity returns into investment income (dividend distribution) and capital gains to investigate which of the two channels delivers the largest potential for risk sharing. Our evidence suggests that net capital gains are a more potent channel of risk sharing. They behave in a countercyclical way, that is they tend to be positive (negative) when the domestic economy is growing more slowly (rapidly) than the rest of the world. Countries with more countercyclical net capital gains experience improved consumption risk sharing. The empirical analysis furthermore suggests that these risk sharing properties of net capital gains have increased through time, in particular in the 1990s and early-2000s, on the back of a declining equity home bias and financial market deepening. JEL Classification: E52, C33, C53

Keywords: consumption smoothing; Cross-Border Investment; International portfolio diversification; International risk sharing; valuation effects (search for similar items in EconPapers)
Date: 2008-10
Note: 338657
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Related works:
Journal Article: Short‐term forecasts of euro area GDP growth (2011) Downloads
Journal Article: Short‐term forecasts of euro area GDP growth (2011) Downloads
Working Paper: Short-term Forecasts of Euro Area GDP Growth (2008) Downloads
Working Paper: Short-Term Forecasts of Euro Area GDP Growth (2008) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2008949

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