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Sharing Asymmetric Tail Risk: Smoothing, Asset Pricing and Terms of Trade.
- Source :
- Working Papers -- U.S. Federal Reserve Board's International Finance Discussion Papers; Aug2021, Issue 1322-1327, p1-56, 56p
- Publication Year :
- 2021
-
Abstract
- Crises and tail events have asymmetric effects across borders, raising the value of arrangements improving insurance of macroeconomic risk. Using a two-country DSGE model, we provide an analytical and quantitative analysis of the channels through which countries gain from sharing (tail) risk. Riskier countries gain in smoother consumption but lose in relative wealth and average consumption. Safer countries benefit from higher wealth and better average terms of trade. Calibrated using the empirical distribution of moments of GDP-growth across countries, the model suggests non-negligible quantitative effects. We offer an algorithm for the correct solution of the equilibrium using DSGE models under complete markets, at higher order of approximation. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- Issue :
- 1322-1327
- Database :
- Complementary Index
- Journal :
- Working Papers -- U.S. Federal Reserve Board's International Finance Discussion Papers
- Publication Type :
- Report
- Accession number :
- 153235651
- Full Text :
- https://doi.org/10.17016/IFDP.2021.1324