Working Paper: CEPR ID: DP16178
Authors: Wilhelm K. Kohler; Gernot M. Müller; Susanne Wellmann
Abstract: International risk sharing insulates consumption from country-specific business-cycle fluctuations. This matters for countries in currency unions who lack monetary autonomy. In the spirit of Mundell, we formally integrate migration as a distinct channel into the standard framework used to quantify risk sharing. Comparing the euro area and the US we find that migration contributes significantly to risk sharing across US states, but not across the euro area. We also present survey evidence showing that migration rates are about 20 times higher in the US. The overall amount of risk sharing in the US is higher by a factor of two.
Keywords: risk sharing; currency unions; labour migration; migration rates; euro area
JEL Codes: F41; F22; G15; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Migration (F22) | Risk Sharing (US) (G52) |
| Output Fluctuations (E32) | Risk Sharing (US) (G52) |
| Migration (F22) | Consumption Smoothing (US) (D15) |
| Risk Sharing (EA) (D16) | Migration (F22) |
| Migration (US) (F22) | Risk Sharing (EA) (D16) |
| Migration Rates (J61) | Risk Sharing (US) (G52) |
| Risk Sharing (EA) (D16) | Output Fluctuations (E32) |