Growth Uncertainty and Risksharing

Federal Reserve Bank of New York Staff Reports Number 30

Posted: 26 Jan 1998

See all articles by Stefano Athanasoulis

Stefano Athanasoulis

University of Notre Dame - Department of Finance

Eric van Wincoop

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 1997

Abstract

We propose a new methodology to evaluate the gains from global risksharing that is closely connected to the empirical growth literature. We obtain estimates of residual risk (growth uncertainty) at various horizons from regressions of country-specific deviations from world growth on a wide set of variables in the information set. Since this residual risk can be entirely hedged, we use it to obtain a measure of welfare gain that can be achieved by a representative country. We find that nations can reap very large benefits from engaging in such risksharing arrangements. Using post-war data, the gain for a 35-year horizon, corresponding to an equivalent permanent increase in consumption, is 6.6% when based on a set of 49 countries and 1.5% when based on 21 OECD countries. Using historical data from 1870 to 1990, we find that the potential gain for a 120-year horizon ranges from 4.9% for a small set of rich countries to 16.5% for a broad set of 24 countries.

JEL Classification: E32, E39, F0, F3, O0, G0

Suggested Citation

Athanasoulis, Stefano and van Wincoop, Eric, Growth Uncertainty and Risksharing (October 1997). Federal Reserve Bank of New York Staff Reports Number 30, Available at SSRN: https://ssrn.com/abstract=48280

Stefano Athanasoulis (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
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219-631-5255 (Fax)

Eric Van Wincoop

University of Virginia - Department of Economics ( email )

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Charlottesville, VA 22904-4182
United States
804-924-3997 (Phone)
804-982-2904 (Fax)

National Bureau of Economic Research (NBER)

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