Inefficient international risk-sharing

• 成果类型: Article
• 署名作者: Cho, Daeha; Kim, Kwang Hwan; Kim, Suk Joon
• 署名单位: Hanyang University; Yonsei University
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2023.04.005
• 发表日期: 2023
• 页码: 31-49
• 关键词: nominal rigidities; risk-sharing; Autarky; Wealth effect; Welfare losses

摘要

Complete financial markets are widely believed to be beneficial for the international economy, since they enable cross-country risk-sharing. Using a two-country New Keynesian model, we show that this is not the case if the source of income fluctuations is a country specific markup shock. When preferences involve the wealth effect on labor supply and imply that Home and Foreign goods are Edgeworth substitutes, the absence of risk-sharing in autarky acts like a favorable markup shock, reducing the variability of relative inflation and output gaps created by the shock. Thus, welfare can be higher under autarky than under complete financial markets, indicating that international risk-sharing can be undesirable. However, if the wealth effect on labor supply is absent or Home and Foreign goods are Edgeworth complements, welfare reversals do not occur.& COPY; 2023 Elsevier B.V. All rights reserved.