International Risk Sharing and European Monetary Unification

Posted: 27 Jan 1998

See all articles by Bent E. Sørensen

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

Date Written: December 1997

Abstract

We explore income and consumption smoothing patterns among European Community (EC) countries and among OECD countries during the period 1966--90. We find that, for OECD as well as for EC countries, about 40 percent of shocks to GDP are smoothed at the one year frequency, with about half the smoothing achieved through national government budget deficits and half by corporate saving. At the three year differencing frequency only 25 percent of shocks to GDP are smoothed, mainly via government lending and borrowing. In the absence of alternative income and consumption smoothing mechanisms, the restrictions on budget deficits imposed by the Maastricht Treaty should be relaxed to allow governments to run large temporary deficits in response to output shocks.

JEL Classification: E2, E6, F15, G15

Suggested Citation

Sorensen, Bent E. and Yosha, Oved, International Risk Sharing and European Monetary Unification (December 1997). Available at SSRN: https://ssrn.com/abstract=56543

Bent E. Sorensen (Contact Author)

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

N/A

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