Financial Globalization, International Business Cycles and Consumption Risk Sharing

25 Pages Posted: 17 Sep 2008

See all articles by Michael J. Artis

Michael J. Artis

University of Manchester - Institute for Political & Economic Governance (IPEG)

Mathias Hoffmann

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 3 versions of this paper

Date Written: 2008-02

Abstract

In spite of two decades of financial globalization, consumption-based indicators do not seem to signal more international risk sharing. We argue that the fraction of idiosyncratic consumption risk that gets shared among industrialized countries has actually increased considerably over the period 1980-2000 and, in particular, during the 1990s - from around 30 to more than 60 percent. However, standard consumption-based measures of risk sharing - such as the volatility of consumption conditional on output or international consumption correlations - have been unable to detect this increase because consumption has also been affected by the concurrent decline in the volatility of output growth in most industrialized countries since the 1980s. First, the volatility of output at business-cycle frequencies has declined by more than has the volatility of permanent fluctuations. Since consumption reacts mainly to permanent shocks, it appears more volatile in relation to current changes in output. This effect seems to have offset the tendency of financial globalization to lower the volatility of consumption conditional on output. Second, because the variability of permanent global shocks has also fallen, international consumption correlations have also generally not increased as financial markets have become more integrated.

Keywords: Consumption risk sharing, international business cycles, great moderation, financial integration and capital flows, home bias

JEL Classification: C23, E21, F36

Suggested Citation

Artis, Michael J. and Hoffmann, Mathias, Financial Globalization, International Business Cycles and Consumption Risk Sharing (2008-02). Scandinavian Journal of Economics, Vol. 110, Issue 3, pp. 447-471, September 2008, Available at SSRN: https://ssrn.com/abstract=1269701 or http://dx.doi.org/10.1111/j.1467-9442.2008.00546.x

Michael J. Artis (Contact Author)

University of Manchester - Institute for Political & Economic Governance (IPEG) ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Mathias Hoffmann

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
2
Abstract Views
568
PlumX Metrics