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Risk sharing in the EMU: a time-varying perspective

Foresti, Pasquale and Napolitano, Oreste (2021) Risk sharing in the EMU: a time-varying perspective. Journal of Common Market Studies. ISSN 0021-9886

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Identification Number: 10.1111/jcms.13217

Abstract

The 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.

Item Type: Article
Official URL: https://onlinelibrary.wiley.com/journal/14685965
Additional Information: © 2021 The Authors
Divisions: European Institute
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Date Deposited: 28 Jul 2021 16:12
Last Modified: 20 Sep 2021 00:36
URI: http://eprints.lse.ac.uk/id/eprint/111483

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