Working Paper: CEPR ID: DP9541
Authors: Sebnem Kalemli-Ozcan; Emiliano Luttini; Bent E. Sørensen
Abstract: Using a variance decomposition of shocks to GDP, we quantify the role of international factor income, international transfers, and saving in achieving risk sharing during the recent European crisis. We focus on the sub-periods 1990--2007, 2008--2009, and 2010 and consider separately the European countries hit by the sovereign debt crisis in 2010. We decompose risk sharing from saving into contributions from government and private saving and show that fiscal austerity programs played an important role in hindering risk sharing during the sovereign debt crisis.
Keywords: capital markets; income insurance; international financial integration
JEL Codes: E2; E6; F15; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GDP shocks (F62) | consumption smoothing (D15) |
| government fiscal policies (E62) | consumption smoothing (D15) |
| government saving (negative) (H69) | overall risk sharing (collapse) (G33) |
| private saving (D14) | consumption smoothing (D15) |
| fiscal austerity programs (E62) | risk sharing (D16) |
| government budgets (without preemptive saving) (H69) | consumption smoothing (D15) |