Title: Asymmetric risk sharing and the business cycle
Authors: Haerang Park - Seoul National University (Korea, South) [presenting]
Soyoung Kim - Seoul National University (Korea, South)
Abstract: Using panel data of 212 countries from 1970 to 2018, we provide evidence on asymmetric international risk sharing over the business cycle. Negative local shocks are amplified by lower international risk sharing, whereas negative global shocks are transmitted to nations around the world through greater international risk sharing. The patterns are not observed in positive shocks. The cyclicality is driven largely by income channel in local recessions due to rising borrowing costs, and by credit market channel in global recessions with a heightened precautionary saving motive. Consumption would be larger in the absence of the cyclical patterns in international risk sharing. More diversified cross-ownership of assets and international transfers could mitigate cyclical risk sharing and its negative impact on consumption. Cyclicality in international risk sharing has yet to be well examined in the international economics literature. Previous studies investigate it with limited cross-sectional variations and obtain mixed results. We provide more robust evidence based on a large cross-country dataset and identify channels of risk sharing that determine the cyclicality.