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Risk-sharing and Consumption-smoothing Patterns in the US and the Euro Area: A comprehensive comparison. CEPS Working Document No 2017/04, May 2017

Alcidi, Cinzia and D’Imperio , Paolo and Thirion, Gilles (2017) Risk-sharing and Consumption-smoothing Patterns in the US and the Euro Area: A comprehensive comparison. CEPS Working Document No 2017/04, May 2017. [Working Paper]

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    Abstract

    This paper compares the capacity to smooth the impact of asymmetric shocks in the US and in the euro area (EA) and examines the various mechanisms through which the shock absorption occurs. It first notes that comparable data for the US and the EA are not readily available, and that in the US, state accounting is such that what the literature commonly calls international risk-sharing in reality embeds inter-temporal consumption-smoothing through retained corporate earnings. With this in mind, we build euro area aggregates suitable for comparison. Our findings confirm that international capital markets in the US are a more powerful tool for risk-sharing than in the EA, but less so than previously reported. The better performance of the US is explained by very poor shock-absorption dynamics in the peripheral euro area countries, especially after 2010, as well as by a higher persistence of shocks in the euro area relative to the US.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > External relations > EU-US
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 05 May 2017 11:17
    Number of Pages: 30
    Last Modified: 10 Dec 2019 15:38
    URI: http://aei.pitt.edu/id/eprint/86832

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