Working Paper: CEPR ID: DP6617
Authors: Michael J. Artis; Mathias Hoffmann
Abstract: This paper provides further evidence on the recent increase in international consumption risk sharing. We show that this increase is more pronounced among EU and EMU countries than among non-E(M)U industrialised countries. We also show that the patterns of international but not intra-European risk sharing have started to diverge from what is found at the level of the OECD as a whole. During the 1990s, capital income flows have started to play a relatively more important role between European countries, whereas the increase in international risk sharing among the OECD as a whole is almost exclusively driven by better consumption smoothing through the accumulation or decumulation of foreign assets. This EMU effect on the pattern of risk sharing survives once we control for differences in international portfolio holdings: while we find that countries with higher equity cross-holdings also tend to share more risk through capital income flows there remains an independent EMU-effect on the way in which risk is shared. While it is too early to evaluate these findings conclusively, we discuss some possible interpretations and their implications for economic policy.
Keywords: capital flows; consumption risk sharing; EMU; financial integration; home bias
JEL Codes: C23; E21; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| international consumption risk sharing (F62) | increase (O42) |
| EMU membership (F36) | risk-sharing dynamics (D16) |
| higher equity cross-holdings (G32) | risk-sharing through capital income flows (F32) |
| capital income flows (F21) | international consumption risk sharing (F62) |
| divergence in risk-sharing patterns (F62) | international vs intra-European contexts (F55) |