Working Paper: NBER ID: w18372
Authors: Julien Bengui; Enrique G. Mendoza; Vincenzo Quadrini
Abstract: This paper investigates whether the international globalization of financial markets allows for significant cross-country risk-sharing at the business cycle frequency. We find that cross-country risk-sharing is still limited and this is unlikely to be the result of financial frictions that limit state-contingent contracts. Part of the limited international risk sharing could be the consequence of frictions that de-facto reduce the short-term mobility of financial capital. But even with these frictions we find significant divergence between model predictions and the data.
Keywords: capital mobility; international risk-sharing; financial globalization
JEL Codes: F36; F44; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| International financial market globalization (F30) | cross-country risk-sharing (F34) |
| Financial market frictions (G19) | limited cross-country risk-sharing (F65) |
| Bond economy model (G12) | consumption dynamics (E21) |
| Financial market frictions (portfolio adjustment costs) (G19) | divergence between model predictions and empirical observations (C59) |