The international risk-sharing puzzle is at business-cycle and lower frequency

We decompose the correlation between relative consumption and the real exchange rate into its dynamic components at different frequencies. Using multivariate spectral analysis techniques we show that, at odds with a high degree of risk-sharing, in most OECD countries the dynamic correlation tends to be quite negative, and signifi cantly so, at frequencies lower than two years —the appropriate frequencies for assessing the performance of international business cycle models. Theoretically, we show that the dynamic correlation over different frequencies predicted by standard open-economy models is the sum of two terms: a term constant across frequencies, which can be negative when uninsurable risk is largeand a term variable across frequencies, which in bond economies is necessarily positive, refl ecting the insurance that intertemporal trade provides against forecastable contingencies. Numerical analysis suggests that leading mechanisms proposed by the literature to account for the puzzle are consistent with the evidence across the spectrumDescomponemos la correlación entre el consumo relativo y el tipo de cambio real en sus componentes dinámicos a diferentes frecuencias. Utilizando técnicas de análisis espectral multivariado mostramos que, en contradicción con un alto grado de diversifi cación del riesgo, en la mayoría de los países de la OCDE la correlación dinámica tiende a ser bastante negativa, y signifi cativamente negativa a frecuencias inferiores a dos años —las frecuencias apropiadas para evaluar el desempeño de los modelos internacionales del ciclo económico—. En teoría mostramos que la correlación dinámica a diferentes frecuencias predicha por modelos estándar de economía abierta, es la suma de dos términos: un término constante en cada frecuencia, que puede ser negativo cuando el riesgo no asegurable es grandey un término que varia con la frecuencia, que en economías con bonos es necesariamente positivo y que refl eja la cobertura de riesgo contra contingencias predecibles proporcionada por el comercio intertemporal. El análisis numérico sugiere que los mecanismos principales propuestos por la literatura para dar cuenta de la anomalía, son consistentes con la evidencia empírica a diferentes frecuencias del espectr

The intensive and the extensive margins : not only an international issue

Empirical evidence shows that quantity (intensive margin) and variety availability (extensive margin) have effects of different magnitude on populations’ welfare. Indeed, the pattern of a market dynamics may cause changes in welfare inequality. Low income consumers benefit more from quantity than high income consumers, who are more interested in enjoying variety. These facts have been usu- ally addressed as consequences of trade liberalization by international trade theory. However, market dynamics are also present within the borders of every country. It is important to understand what forces, unrelated with international trade, affect these dynamics. This paper explores the transmission of different real shocks into mar- ket dynamics in a new-Keynesian closed economy. Results show that the source of the shock is crucial to determine the magnitude and direction of the effects on each margin.info:eu-repo/semantics/publishedVersio