International risk sharing during the globalization era

Information Globalization, Risk Sharing, and International Trade

Information frictions are often invoked to explain low levels of international trade beyond those that measured trade frictions (tariffs, transportation costs, etc.) can explain. But to explain why international trade is lower then domestic trade, home firms have to know something that foreigners do not. Without information asymmetry, domestic trade and foreign trade would be inhibited equally....

A new "era of risk-sharing".

The Gains from International Risk-Sharing

Keith Sill is a senior economist in the Research Department of the Philadelphia Fed. Our economy has become increasingly global. We import and export more than ever before. Yet, three facts about international financial transactions, when taken together, pose a puzzle. First, financial capital moves freely across country borders, at least in the case of the developed countries. Returns on simil...

Financial Markets and International Risk Sharing

Panel analysis of 20 industrial countries shows evidence for pro-cyclicality of capital gains on domestic stock markets in particular over a medium term horizon. Thus, with cross-border ownership of portfolio equity investments, potential for international smoothing of domestic output fluctuations by means of the capital gains channel is found. Individual country analysis reveals substantial he...

Financial integration and international risk sharing

Conventional wisdom suggests that countries that are more financially integrated can better insure against risk. Despite widespread deregulation and financial integration in recent history, there is little evidence that countries have increased risk sharing. This work shows financial integration does not necessarily lead to significant improvement in risk sharing if financial contracts are inco...