Missing Risk Sharing from International Transmission through Product Quality and Variety
Masashige Hamano ()
CREA Discussion Paper Series from Center for Research in Economic Analysis, University of Luxembourg
This paper explores the role played by product quality and variety in interna- tional consumption risk sharing. Turnover in product quality and variety can cause a wealth effect. A reasonable Backus-Smith correlation is driven by the Harrod- Balassa-Samuelson mechanism based on heterogeneous firms. Using panel data, we test the prediction of the theoretical model and find a supportive evidence for a resolution to the Backus-Smith puzzle. The extent of \missing risk sharing" due to unobservable fluctuations in quality and the number of varieties is high in the data.
Keywords: exchange rate; consumption-real exchange rate anomaly; product quality; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: F12 F41 F43 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:17-17
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