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Borrowing constraints and international risk sharing: evidence from asymmetric error-correction
[journal article]
Abstract We analyze the adjustment process of consumption growth after
disequilibrating output shocks in a sample of OECD countries. In particular,
we test the hypothesis that consumption is smoothed to a lesser
degree after negative shocks, whereas the impact of a positive shock is
delayed for a longer peri... view more
We analyze the adjustment process of consumption growth after
disequilibrating output shocks in a sample of OECD countries. In particular,
we test the hypothesis that consumption is smoothed to a lesser
degree after negative shocks, whereas the impact of a positive shock is
delayed for a longer period of time. Our analysis is based on an error correction
framework that allows for asymmetric adjustment. We find that the mean adjustment lag after a negative shock is significantly shorter than after a positive shock, especially since the beginning of the 1980s. This result is consistent with the interpretation that borrowing constraints limit the degree to which the impact of negative shocks on consumption can be smoothed.... view less
Classification
Political Economy
Free Keywords
International Risk Sharing; Error-Correction
Document language
English
Publication Year
2010
Journal
Applied Economics (2010)
DOI
https://doi.org/10.1080/00036840903103692
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)