International Consumption Insurance and Within-Country Risk Reallocation
Title: International Consumption Insurance and Within-Country Risk Reallocation
Author: LO PRETE, Anna
Publisher: European University Institute
Series/Number: EUI MWP; 2008/03
Institutions meant to reallocate risks that cannot be fully diversified on financial markets, such as labour income fluctuations, may also affect the response of aggregate consumption to country-specific income shocks. This paper empirically assesses this possibility by extending a standard cross-country consumption insurance test to account for the interaction between macroeconomic shocks and labour and credit market institutions. In a panel of 15 OECD countries observed over the 1971-2003 period, institutional heterogeneity is a significant determinant of cross-country differences in consumption responsiveness to income changes. The estimates are remarkably robust to the inclusion of unobservable country-level heterogeneity and time-varying institutional indicators.
Subject: Risk-sharing; financial markets; labour and credit market institutions
Type of Access: openAccess