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dc.contributor.authorCORSETTI, Giancarlo
dc.contributor.authorDEDOLA, Luca
dc.contributor.authorVIANI, Francesca
dc.date.accessioned2011-05-17T11:54:03Z
dc.date.available2011-05-17T11:54:03Z
dc.date.issued2011
dc.identifier.issn1725-6704
dc.identifier.urihttps://hdl.handle.net/1814/17216
dc.description.abstractWe decompose the Backus-Smith [1993] statistic -- a low or negative correlation between relative consumption and the real exchange rate at odds with a high degree of international risk sharing -- in its dynamic components at different frequencies. Using multivariate spectral analysis techniques we show that, in most OECD countries, the dynamic correlation tends to be more negative, and significantly so, at business cycle or lower frequencies -- the appropriate frequencies for assessing the performance of international business cycle models. Theoretically, we show that the dynamic correlation predicted by standard open-economy models is the sum of two terms: a term constant across frequencies, which can be negative as a function of uninsurable risk; a term variable across frequencies, which in bond economies is necessarily positive, reflecting the insurance intertemporal trade provides against forecastable contingencies. We show that the main mechanisms proposed in the literature to account for the puzzle are consistent with the evidence.en
dc.format.mimetypeapplication/pdf
dc.language.isoenen
dc.publisherEuropean University Institute
dc.relation.ispartofseriesEUI ECOen
dc.relation.ispartofseries2011/16en
dc.rightsinfo:eu-repo/semantics/openAccess
dc.subjectInternational Risk-Sharingen
dc.subjectIncomplete marketsen
dc.subjectSpectral Analysisen
dc.subjectF41en
dc.subjectF42en
dc.titleThe international risk-sharing puzzle is at business cycle and lower frequencyen
dc.typeWorking Paperen
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