Capital Market Integration and Consumption Risk Sharing over the Long Run

Jesper Rangvid, Pedro Santa-Clara, Maik Schmeling

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We empirically investigate time variation in capital market integration and consumption risk sharing using data for 16 countries from 1875 to 2012. We show that there has been considerable variation over time in the degrees of capital market integration and consumption risk sharing and that higher capital market integration forecasts more consumption risk sharing in the future. This finding is robust to controlling for trade openness and exchange rate volatility as alternative drivers of risk sharing. Finally, we calculate the welfare costs of imperfect consumption risk sharing and find that these costs vary over time, line up with variation in risk sharing, and are quite substantial during periods of low risk sharing.
We empirically investigate time variation in capital market integration and consumption risk sharing using data for 16 countries from 1875 to 2012. We show that there has been considerable variation over time in the degrees of capital market integration and consumption risk sharing and that higher capital market integration forecasts more consumption risk sharing in the future. This finding is robust to controlling for trade openness and exchange rate volatility as alternative drivers of risk sharing. Finally, we calculate the welfare costs of imperfect consumption risk sharing and find that these costs vary over time, line up with variation in risk sharing, and are quite substantial during periods of low risk sharing.
LanguageEnglish
JournalJournal of International Economics
Volume103
Pages27–43
ISSN0022-1996
DOIs
StatePublished - Nov 2016

Keywords

  • Consumption risk sharing
  • Long-run international data
  • Market integration

Cite this

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Capital Market Integration and Consumption Risk Sharing over the Long Run. / Rangvid, Jesper; Santa-Clara, Pedro; Schmeling, Maik.

In: Journal of International Economics, Vol. 103, 11.2016, p. 27–43.

Research output: Contribution to journalJournal articleResearchpeer-review

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