Changing patterns of risk-sharing channels in the United States and the euro area

Jacopo Cimadomo, Massimo Giuliodori, Andras Lengyel and Haroon Mumtaz

No 2849, Working Paper Series from European Central Bank

Abstract: In this paper, we assess how risk-sharing channels have evolved over time in the United States and the Euro Area, and whether they have operated as ‘complements’ or ‘substitutes’. In particular, we focus on the capital channel (income from cross-border ownership of productive assets), the credit channel (interstate or cross-country bank lending), and the fiscal channel (federal or international fiscal transfers). We offer three main contributions. First, we propose a time-varying parameter panel VAR model, with stochastic volatility, which allows us to formally quantify time variation in risk-sharing channels. Second, we develop a new test of the complementarity vs. substitutability hypothesis of the three risk-sharing channels, based on the correlation between the impulse responses of these channels to idiosyncratic output shocks. Third, for the United States, we explain time variation in the risk-sharing channels based on some key macroeconomic and financial variables. JEL Classification: C11, C33, E21, E32

Keywords: complementarity; risk-sharing channels; substitutability; time variation (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fdg, nep-opm and nep-rmg
Note: 352854
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232849

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