Economics at your fingertips  

The Collateral Link between Volatility and Risk Sharing

Sebastian Infante and Guillermo Ordonez

No 28119, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that aggregate volatility affects the extent to which agents can share idiosyncratic risks through the valuation of collateral. Both private and public assets are used in insurance markets as collateral, but their exposure to volatility differs. While aggregate volatility decreases the value of private assets—they are exposed to more variation—it increases the value of public assets—they become more valuable to smooth consumption intertemporally. Hence, a more volatile economy tends to damage risk sharing when the composition of collateral is biased toward private assets. As we show that a stable economy is more propitious to the creation of private collateral, stability makes risk sharing increasingly fragile to volatility shocks. We find empirical evidence that the higher use of private assets in the U.S. has affected the sensitivity of risk sharing to aggregate volatility as predicted by our model.

JEL-codes: E44 G12 G18 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-fmk, nep-ias, nep-mac and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link) (application/pdf)

Related works:
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:

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

Page updated 2024-05-30
Handle: RePEc:nbr:nberwo:28119