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International Risk Sharing with Endogenously Segmented Asset Markets

Author

Listed:
  • Simona E. Cociuba

    (Federal Reserve Bank of Dallas)

  • Ananth Ramanarayanan

    (Federal Reserve Bank of Dallas)

Abstract
Asset price data imply a large degree international risk sharing, while aggregate consumption data do not. We evaluate how well a model with fixed costs of exchanging money for assets can account for this discrepancy. In our model, households receive idiosyncratic income shocks, and only a fraction of households adjust their asset holdings each period. These households share risk within and across countries, and their marginal utilities price assets, so asset prices imply high international risk sharing. Inactive households do not share risk, so aggregate consumption reflects low risk sharing. Quantitatively, this mechanism depends on the degree of asset market segmentation, which we choose so that the cross-sectional dispersion of consumption relative to income matches that in US data.

Suggested Citation

  • Simona E. Cociuba & Ananth Ramanarayanan, 2011. "International Risk Sharing with Endogenously Segmented Asset Markets," 2011 Meeting Papers 853, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:853
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    Cited by:

    1. Robert Kollmann, 2012. "Limited asset market participation and the consumption‐real exchange rate anomaly," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 566-584, May.
    2. Curatola, Giuliano & Dergunov, Ilya, 2023. "International capital markets with interdependent preferences: Theory and empirical evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 403-421.
    3. Chaban, Maxym, 2024. "Exchange rate dynamics and consumption of traded goods," Journal of Macroeconomics, Elsevier, vol. 80(C).
    4. Malin Gardberg, 2022. "Financial reforms and low‐income households' impact on international consumption risk sharing," International Finance, Wiley Blackwell, vol. 25(3), pages 375-395, December.

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    More about this item

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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