Asymmetric Shocks among U.S. States

Abstract:     
This paper applies a factor model to the study of risk sharing among U.S. states. The factor model makes it possible to disentangle movements in output and consumption due to national, regional, or state-specific business cycles from those due to measurement error. The results of the paper suggest that some findings of the previous literature which indicate a substantial amount of interstate risk sharing may be due to the presence of measurement error in output. When measurement error is properly taken into account, the evidence points towards a lack of interstate smoothing.

Number of Pages in PDF File: 46

Keywords: Intranational Business Cycles, Risk Sharing, Factor Models

JEL Classification: E20, E32, F36

working papers series