Growth Uncertainty and Risksharing

34 Pages Posted: 11 Nov 2006

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: F41, O47

Suggested Citation

Athanasoulis, Stefano and van Wincoop, Eric, Growth Uncertainty and Risksharing (October 1997). FRB of New York Staff Report No. 30, Available at SSRN: https://ssrn.com/abstract=943505 or http://dx.doi.org/10.2139/ssrn.943505

Stefano Athanasoulis (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
219-631-3659 (Phone)
219-631-5255 (Fax)

Eric Van Wincoop

University of Virginia - Department of Economics ( email )

Rouss Hall 114
P.O. Box 400182
Charlottesville, VA 22904-4182
United States
804-924-3997 (Phone)
804-982-2904 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
37
Abstract Views
489
PlumX Metrics