Testing for consumer risk-pooling in the open economy - further results

Minford, Patrick ORCID: https://orcid.org/0000-0003-2499-935X, Ou, Zhirong ORCID: https://orcid.org/0000-0002-4610-7183 and Zhu, Zheyi 2024. Testing for consumer risk-pooling in the open economy - further results. Open Economies Review 10.1007/s11079-024-09782-5

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Abstract

In this supplement to Minford et al. (2021), we revisit the `puzzle' in open economy studies that evidence of international risk-sharing is hardly seen despite active cross-country financial markets. We reassess both risk-pooling via state-contingent bonds, and uncovered interest parity -- both were believed to be different, and spuriously rejected, in previous work -- in the context of a full DSGE model of the New Keynesian type. We prove that the two models are identical, both analytically and numerically. When tested as part of such a full DSGE model by indirect inference which circumvents the bias of single-equation tests, we find universal evidence of international risk-sharing.

Item Type:	Article
Date Type:	Published Online
Status:	In Press
Schools:	Business (Including Economics)
Publisher:	Springer
ISSN:	0923-7992
Date of First Compliant Deposit:	15 August 2024
Date of Acceptance:	9 July 2024
Last Modified:	16 Aug 2024 15:26
URI:	https://orca.cardiff.ac.uk/id/eprint/171362

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