Enhancing Private and Public Risk Sharing

40 Pages Posted: 20 Sep 2022

See all articles by Jacopo Cimadomo

Jacopo Cimadomo

European Central Bank

Esther Gordo Mora

Independent Authority for Fiscal Responsibility

Alessandra Anna Palazzo

European Central Bank (ECB)

Date Written: September 1, 2022

Abstract

This article surveys the literature on consumption risk sharing, focusing on the findings for the euro area and for the United States, but also presenting evidence for other countries. The literature examined found that risk sharing is higher in more mature federations, such as the United States, than in the euro area. The papers surveyed suggest that state/country-specific output shocks are primarily smoothed out through the capital and credit channel, whereas the fiscal channel as a minor role, especially in the euro area. Overall, about 70% of shocks is smoothed in the United States while just 40% in the euro area. At the same time, our analysis of the response to the COVID-19 crisis indicates that risk sharing in the euro area has been more resilient than it was during the global financial crisis of 2008-09. Overall, our results point to the need for further improvements to the private and public risk-sharing channels in the euro area to ensure more effective cushioning against asymmetric shocks and to boost progress towards the completion of European Monetary Union (EMU).

Keywords: COVID-19 crisis, EMU reform, Risk sharing

JEL Classification: C23, E62, G11, G15

Suggested Citation

Cimadomo, Jacopo and Gordo Mora, Esther and Palazzo, Alessandra Anna, Enhancing Private and Public Risk Sharing (September 1, 2022). ECB Occasional Paper No. 2022/306, Available at SSRN: https://ssrn.com/abstract=4223943 or http://dx.doi.org/10.2139/ssrn.4223943

Jacopo Cimadomo (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Esther Gordo Mora

Independent Authority for Fiscal Responsibility ( email )

Calle José Abascal, 2
Madrid, Madrid 28003
Spain

Alessandra Anna Palazzo

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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