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International Risk Sharing During the Globalization Era

39 Pages Posted: 13 Oct 2009  

Akito Matsumoto

International Monetary Fund (IMF)

Robert P. Flood

International Monetary Fund (IMF) - Research Department; CENTRUM Business School; National Bureau of Economic Research (NBER)

Nancy Peregrim Marion

Dartmouth College - Department of Economics

Date Written: September 2009

Abstract

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.

Keywords: Business cycles, Consumption, Cross country analysis, Economic growth, Economic integration, Economic models, Globalization, International trade, Risk management, Welfare

Suggested Citation

Matsumoto, Akito and Flood, Robert P. and Marion, Nancy Peregrim, International Risk Sharing During the Globalization Era (September 2009). IMF Working Papers, Vol. , pp. 1-38, 2009. Available at SSRN: https://ssrn.com/abstract=1486527

Akito Matsumoto (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Robert P. Flood

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7667 (Phone)
202-623-6339 (Fax)

CENTRUM Business School

Daniel Alomía Robles s/n
Los Alamos de Monterrico
Surco, Lima, Lima 00001
Peru

Nancy P. Marion

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
(603) 646-2511 (Phone)

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