Risk sharing in the EMU: a time-varying perspective

Pasquale Foresti and Oreste Napolitano ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The development of effective risk sharing mechanisms is one of the main passages for the success and longevity of a monetary union. In this paper, we study risk sharing, measured as income and consumption smoothing, in the EMU. As we employ time-varying estimations, we are able to retrieve time patterns of risk sharing for each member country and to compare them with the degree of economic asymmetry within the EMU. Other than documenting the need for stronger risk sharing mechanisms in the EMU, our results also suggest that much more attention should be dedicated to fostering homogeneity in risk sharing across member countries. We document the existence of increasing heterogeneity in the risk sharing capacity between member countries that can potentially exacerbate and amplify the impact of asymmetric shocks and further destabilize the EMU.

Keywords: consumption smoothing; economic asymmetry; EMU; income smoothing; risk sharing (search for similar items in EconPapers)
JEL-codes: F3 G3 J1 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2022-03-01
New Economics Papers: this item is included in nep-isf, nep-mon, nep-opm, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Journal of Common Market Studies, 1, March, 2022, 60(2), pp. 319 - 336. ISSN: 0021-9886

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http://eprints.lse.ac.uk/111483/ Open access version. (application/pdf)

Related works:
Journal Article: Risk Sharing in the EMU: A Time‐Varying Perspective (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:111483

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