Working Paper: NBER ID: w17612
Authors: Faruk Balli; Sebnem Kalemliozcan; Bent Sorensen
Abstract: We estimate channels of international risk sharing between European Monetary Union (EMU), European Union, and other OECD countries 1992-2007. We focus on risk sharing through savings, factor income flows, and capital gains. Risk sharing through factor income and capital gains was close to zero before 1999 but has increased since then. Risk sharing from capital gains, at about 6 percent, is higher than risk sharing from factor income flows for European Union countries and OECD countries. Risk sharing from factor income flows is higher for Euro zone countries, at 14 percent, reflecting increased international asset and liability holdings in the Euro area.
Keywords: risk sharing; capital gains; EMU; EU; OECD
JEL Codes: F21; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| risk sharing through capital gains has increased since 1999 (D33) | capital gains contribute approximately 6% to overall risk sharing among EU and OECD countries (F62) |
| risk sharing through capital gains has increased since 1999 (D33) | risk sharing from factor income flows was close to zero before 1999 (D33) |
| risk sharing from factor income flows is notably higher for Eurozone countries at 14% (E25) | reflects increased international asset and liability holdings (F30) |
| capital gains provide stable risk sharing over time (D15) | factor income flows have shown volatility (E25) |
| ignoring capital gains could lead to underestimation of risk sharing arising from foreign capital holdings (F21) | emphasizes the importance of this channel in the context of financial globalization (F65) |