Capital Mobility and International Sharing of Cyclical Risk
This paper investigates whether the international globalization of financial markets allows for significant cross-country risk-sharing at the business cycle frequency. We find that cross-country risk-sharing is still limited and this is unlikely to be the result of financial frictions that limit state-contingent contracts. Part of the limited international risk sharing could be the consequence of frictions that de-facto reduce the short-term mobility of financial capital. But even with these frictions we find significant divergence between model predictions and the data.
This paper was prepared for the April 2012 Carnegie-NYU-Rochester Conference on Public Policy. We are grateful for the thoughtful comments and suggestions made by our discussant, Mark Aguiar, as well as those from our editor, Gianluca Violante, and from the audience. Mendoza and Quadrini are also grateful to the National Science Foundation for supporting this research under Grant SES-0922659. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Bengui, Julien & Mendoza, Enrique G. & Quadrini, Vincenzo, 2013. "Capital mobility and international sharing of cyclical risk," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 42-62. citation courtesy of