Year: 2024
Type: preprint
Abstract: We study how risk sharing affects the macroeconomic allocation, asset prices and welfare. Employing perturbation and global methods, we characterize a global (multi-country) equilibrium in terms of asymmetries in higher-order moments of non-Gaussian shocks and country size. Financial integration has consumption smoothing and wealth level effects. Wealth effects emerge through the revaluation of a country assets and terms of trade— benefiting safer and/or smaller economies. Riskier countries enjoy smoother consumption, but at the expense of lower relative wealth. Although riskier countries gain more, safety command a welfare and financial premium, with welfare differences being near-linear in relative asset prices.
DOI: 10.17863/cam.112110
Authors: Corsetti, G., Lipińska, A., Lombardo, G.
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
Funders: University of Cambridge, Banco de España
OpenAlex ID: W7105759391
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