TY  - JOUR
AU  - Lewis,Karen K.
TI  - What Can Explain the Apparent Lack of International Consumption Risk    Sharing?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5203
PY  - 1995
Y2  - August 1995
UR  - http://www.nber.org/papers/w5203
L1  - http://www.nber.org/papers/w5203.pdf
N1  - Author contact info:
Karen K. Lewis
Department of Finance, Wharton School
2300 SHDH
University of Pennsylvania
Philadelphia, PA 19104-6367
Tel: 215/898-7637
Fax: 215/898-6200
E-Mail: lewisk@wharton.upenn.edu
AB  - Recent research in international business cycles based upon complete markets has found that international consumption correlations are lower than predicted by the standard risk-sharing implications of these models.  In this paper, I use regression tests to ask whether two different types of explanations can help explain this result. First, I consider whether non-separabilities between tradeables and non-tradeable leisure or goods can explain the puzzle.  Surprisingly, non-separabilities explain only a tiny fraction of the variation in tradeables consumption across countries.  Furthermore, risk-sharing in tradeables is rejected.  Second, I examine the effects of capital market restrictions on aggregate consumption risk-sharing by countries.  While rejections of risk-sharing are stronger for countries facing more severe capital market restrictions, risk-sharing is still rejected for the unrestricted group of countries.  Therefore, risk-sharing does not appear to be resolved by either explanation alone.  However, when I allow for both non-separabilities and certain market restrictions, risk-sharing among unrestricted countries is not rejected.  This evidence suggests that a combination of these two effects may be necessary to explain consumption risk-sharing across countries.
ER  -