Risk Sharing in the EMU: A Time-Varying Perspective

Pasquale Foresti, Oreste Napolitano

Research output: Contribution to journalArticlepeer-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 languageEnglish
Pages (from-to)319-336
Number of pages18
JournalJournal of Common Market Studies
Volume60
Issue number2
DOIs
Publication statusPublished - 14 Jul 2021

Keywords

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

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