Are Industrial-Country Consumption Risks Globally Diversified?

57 Pages Posted: 28 Dec 2006 Last revised: 10 Oct 2022

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley; Peterson Institute for International Economics; National Bureau of Economic Research; Centre for Economic Policy Research

Date Written: March 1993

Abstract

What idiosyncratic consumption risks can countries trade away on international asset markets? This paper develops an empirical methodology for answering the question. The tests are based on the proposition that in an integrated world asset market with representative national agents, the ex post difference between two countries' intertemporal marginal rates of substitution in consumption is uncorrelated with any random variable on which contractual payoffs can be conditioned. This result is applied to annual time-series data for the seven largest industrial countries over 1950-88. Of these countries, Germany seems to have been most successful at internationally diversifying its consumption risks.

Suggested Citation

Obstfeld, Maurice, Are Industrial-Country Consumption Risks Globally Diversified? (March 1993). NBER Working Paper No. w4308, Available at SSRN: https://ssrn.com/abstract=478728

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