Has Globalization Improved International Risk Sharing?

Authors

  • Nikolaos Antonakakis,

    1. Department of Economics, Institute for International Economics & Research Institute for European Affairs, Vienna University of Economics and Business, Austria
    Search for more papers by this author
  • Johann Scharler

    Corresponding author
    1. Department of Economics, University of Innsbruck, Austria
    • Department of Economics, Institute for International Economics & Research Institute for European Affairs, Vienna University of Economics and Business, Austria
    Search for more papers by this author

  • The authors would like to thank two anonymous reviewers for helpful comments.

Johann Scharler Department of Economics University of Innsbruck Universitaetsstrasse 15, A-6020 Innsbruck Austria

johann.scharler@uibk.ac.at

Abstract

In this paper, we study the dynamics of international consumption risk sharing among the G-7 countries. Based on the dynamic conditional correlation model due to Engle (2002), we construct a time-varying, consumption-based measure of risk sharing. We find that the exposure to country-specific shocks has evolved heterogeneously across the G-7 countries and that risk sharing varies procyclically with the output gap. This dependence on the business cycle is especially pronounced in countries where credit constraints are relatively binding.

Ancillary