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American Economic Review: Vol. 102 No. 6 (October 2012)

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Trade Costs, Asset Market Frictions, and Risk Sharing

Article Citation

Fitzgerald, Doireann. 2012. "Trade Costs, Asset Market Frictions, and Risk Sharing." American Economic Review, 102(6): 2700-2733.

DOI: 10.1257/aer.102.6.2700

Abstract

I use bilateral import data to test for and quantify the importance of trade costs and asset market frictions in explaining the failure of perfect international consumption risk sharing. I find that while frictions in international asset markets significantly impede optimal consumption risk sharing between developed and developing countries over the period 1970-2000, developed countries are close to optimal risk sharing with each other. Trade costs, in contrast, significantly impede risk sharing for all countries. (JEL E21, E44, F14, F41, G15)

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Authors

Fitzgerald, Doireann (Stanford U)

JEL Classifications

E21: Macroeconomics: Consumption; Saving; Wealth
E44: Financial Markets and the Macroeconomy
F14: Empirical Studies of Trade
F41: Open Economy Macroeconomics
G15: International Financial Markets


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