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International Risk Sharing in Overlapping Generations Models

James Staveley-O'Carroll and Olena Staveley-O'Carroll ()

No 1806, Working Papers from College of the Holy Cross, Department of Economics

Abstract: We present a solution to the Backus-Smith puzzle that, instead of relying on extreme parameter values or complex modeling assumptions, simply switches the framework from in?nitely lived agents to overlapping generations. Young agents face non-diversi?able wage risk that leads to a low degree of risk sharing within each country. Subsequently, international price movements are not sufficient to achieve the high consumption-real exchange rate correlation produced in standard infinitely lived agent DSGE models.

Keywords: Backus-Smith; international portfolio choice; overlapping generations; risk sharing (search for similar items in EconPapers)
JEL-codes: D52 F21 F41 G11 (search for similar items in EconPapers)
Pages: 6 pages
Date: 2018-07
New Economics Papers: this item is included in nep-dge and nep-opm
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Published in Economics Letters, forthcoming.

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Journal Article: International risk sharing in overlapping generations models (2019) Downloads
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