International risk sharing and low cross-country consumption correlations: are they really inconsistent?

Michael Pakko

No 1994-019, Working Papers from Federal Reserve Bank of St. Louis

Abstract: In dynamic equilibrium trade models, the common assumption that asset markets are complete implies that correlations of consumption across countries should be quite high. In contrast, measured consumption correlations tend to be rather low. While some suggest this implies that asset market incompleteness is a fundamental feature determining international trade dynamics, this paper provides an example ofa simple model economy in which complete markets can be associated with consumption correlations that are lower than output correlations. Conditions for substitution elasticities associated with this result are derived for a two-country, two-good endowment model with heterogeneous agents.

Keywords: Risk; Consumption (Economics) (search for similar items in EconPapers)
Date: 1996
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Review of International Economics, August 1997, 5(3), pp. 386-400

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/1994/1994-019.pdf Full text (application/pdf)

Related works:
Journal Article: International Risk Sharing and Low Cross-Country Consumption Correlations: Are They Really Inconsistent? (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:1994-019

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.1994.019

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().