1. Risk Sharing in the EMU: A Time‐Varying Perspective
- Author
-
Oreste Napolitano and Pasquale Foresti
- Subjects
EMU ,HB Economic Theory ,Economics and Econometrics ,HG Finance ,Perspective (graphical) ,income smoothing ,Consumption smoothing ,Monetary economics ,General Business, Management and Accounting ,Time pattern ,economic asymmetry ,immune system diseases ,hemic and lymphatic diseases ,Political Science and International Relations ,Risk sharing ,risk sharing ,consumption smoothing ,Business ,Business and International Management - 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.
- Published
- 2021