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International Risk Sharing During the Globalization Era

Author/Editor: Flood, Robert P. | Marion, Nancy P. | Matsumoto, Akito
Authorized for Distribution: September 1, 2009
Electronic Access: Free Full Text (PDF file size is 1,901KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Though theory suggests financial globalization should improve international risk sharing, empirical support has been limited. We develop a simple welfare-based measure that captures how far countries are from the ideal of perfect risk sharing. We then take it to data and find international risk sharing has, indeed, improved during globalization. Improved risk sharing comes mostly from the convergence in rates of consumption growth among countries rather than from synchronization of consumption at the business cycle frequency. Our finding explains why many existing measures fail to detect improved risk sharing-they focus only on risk sharing at the business cycle frequency.
 
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Series: Working Paper No. 09/209
Subject(s): Business cycles | Consumption | Cross country analysis | Economic growth | Economic integration | Economic models | Globalization | International trade | Risk management | Welfare
Author's keyword(s): International risk sharing; incomplete market | globalization
 
English  
    Published:   September 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009209   Pages:   38
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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