Risk Sharing in the EMU: A Time-Varying Perspective

Pasquale Foresti; Oreste  Napolitano

doi:10.1111/jcms.13217

Risk Sharing in the EMU: A Time-Varying Perspective

Pasquale Foresti, Oreste Napolitano

Centre for Sustainability and Responsible Management

Research output: Contribution to journal › Article › peer-review

Abstract

AbstractThe development of effective risk sharing mechanisms is one of the main passages for the success and longevity of a monetary union. In this paper, we study risk sharing, measured as income and consumption smoothing, in the EMU. As we employ time‐varying estimations, we are able to retrieve time patterns of risk sharing for each member country and to compare them with the degree of economic asymmetry within the EMU. Other than documenting the need for stronger risk sharing mechanisms in the EMU, our results also suggest that much more attention should be dedicated to fostering homogeneity in risk sharing across member countries. We document the existence of increasing heterogeneity in the risk sharing capacity between member countries that can potentially exacerbate and amplify the impact of asymmetric shocks and further destabilize the EMU.

Original language	English
Pages (from-to)	319-336
Number of pages	18
Journal	Journal of Common Market Studies
Volume	60
Issue number	2
DOIs	https://doi.org/10.1111/jcms.13217
Publication status	Published - 14 Jul 2021

Keywords

Business and International Management
Economics and Econometrics
General Business, Management and Accounting
Political Science and International Relations

Access to Document

10.1111/jcms.13217Licence: CC BY

https://onlinelibrary.wiley.com/doi/full/10.1111/jcms.13217Licence: CC BY

Cite this

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title = "Risk Sharing in the EMU: A Time-Varying Perspective",

abstract = "AbstractThe development of effective risk sharing mechanisms is one of the main passages for the success and longevity of a monetary union. In this paper, we study risk sharing, measured as income and consumption smoothing, in the EMU. As we employ time‐varying estimations, we are able to retrieve time patterns of risk sharing for each member country and to compare them with the degree of economic asymmetry within the EMU. Other than documenting the need for stronger risk sharing mechanisms in the EMU, our results also suggest that much more attention should be dedicated to fostering homogeneity in risk sharing across member countries. We document the existence of increasing heterogeneity in the risk sharing capacity between member countries that can potentially exacerbate and amplify the impact of asymmetric shocks and further destabilize the EMU.",

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N2 - AbstractThe development of effective risk sharing mechanisms is one of the main passages for the success and longevity of a monetary union. In this paper, we study risk sharing, measured as income and consumption smoothing, in the EMU. As we employ time‐varying estimations, we are able to retrieve time patterns of risk sharing for each member country and to compare them with the degree of economic asymmetry within the EMU. Other than documenting the need for stronger risk sharing mechanisms in the EMU, our results also suggest that much more attention should be dedicated to fostering homogeneity in risk sharing across member countries. We document the existence of increasing heterogeneity in the risk sharing capacity between member countries that can potentially exacerbate and amplify the impact of asymmetric shocks and further destabilize the EMU.

AB - AbstractThe development of effective risk sharing mechanisms is one of the main passages for the success and longevity of a monetary union. In this paper, we study risk sharing, measured as income and consumption smoothing, in the EMU. As we employ time‐varying estimations, we are able to retrieve time patterns of risk sharing for each member country and to compare them with the degree of economic asymmetry within the EMU. Other than documenting the need for stronger risk sharing mechanisms in the EMU, our results also suggest that much more attention should be dedicated to fostering homogeneity in risk sharing across member countries. We document the existence of increasing heterogeneity in the risk sharing capacity between member countries that can potentially exacerbate and amplify the impact of asymmetric shocks and further destabilize the EMU.

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KW - General Business, Management and Accounting

KW - Political Science and International Relations

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