UID:
edocfu_9958098513702883
Format:
1 online resource (52 p.)
ISBN:
1-4623-8206-1
,
1-4519-9135-5
,
1-283-51689-6
,
9786613829344
,
1-4519-1149-1
Series Statement:
IMF working paper ; WP/07/132
Content:
In this paper, we identify the groups of countries where international risk-sharing opportunities are most attractive. We show that the bulk of risk-sharing gains can be achieved in groups consisting of as few as seven members, and that further marginal benefits quickly become negligible. For many such small groups, the welfare gains associated with risk sharing can amount to one order of magnitude larger than Lucas's classic calibration suggested for the United States, under similar assumptions on utility. Why do we not observe more arrangements of this type? Large welfare gains can only be achieved within groups where contracts are probably seen as relatively difficult to enforce. International diversification can thus yield substantial gains, but these may remain untapped owing to potential partners' weak institutional quality and a history of default on international obligations. Noting that existing risk sharing arrangements often have a regional dimension, we speculate that shared economic interests such as common trade may help sustain such arrangements, though risk-sharing gains are smaller when membership is constrained on a regional basis.
Note:
"June 2007".
,
Contents; I. Introduction; II. Methodology; A. Risk Sharing, Volatility, and Welfare; B. Combinatorial Analysis; III. Results; A. Data; B. A Simple Example; Figures; 1. Chile: Benefits of Diversification Under Various Restrictions; Tables; 1. Components Accounting for the Variance of the Best Pool of Seven Countries For Chile; 2. Components Accounting for Chile's Variance in the Best Pools of Each Size; C. Global Diversification; 3. Is Chile's Minimum Volatility Pool Stable?; 2. Standard Deviation of Poolwide Growth-Best Pools Versus Best Stable Pools
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4. Lowest Poolwide Volatility Envelopes for Samples Constrained by Level of Development5. Pooling Gains; IV. Choosing Partners Within Subsamples; 3. Welfare Gains Allowing for "Entry Transfers"; 4. Gains from Risk Pooling Among Countries; A. Level of Development and Country Size; B. Institutional Quality and Past Payment Record; C. International Financial Integration; D. Regional Constraints; E. Trade Integration; F. Existing Arrangements; 6. Trade and Diversification Benefits; V. Extensions; A. Pooling Growth Rates; 5. Poolwide Volatility for Selected Groups; B. Best Marginal Contract
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6. Welfare Gains Allowing for "Entry Transfers" and Differences in Expected Growth7. Standard Deviation of Arithmetic Mean Growth Rate; C. Liquidity-Crisis Based Criteria; 7. Frequency of Common Crises in Pools of Various Sizes, 1975-2004; VI. Conclusion; Appendix: "Stable" Pools Based on Volatility Criterion; Appendix Tables; 1. Country Samples; 2. Lowest Standard Deviation of Poolwide Growth Choosing Pools Under Various Constraints; 3. Welfare Gains for Different Groups of Countries Under Various Constraints; Appendix Figure 1. Stable Groups for Fixed Pool Sizes; References
,
English
Additional Edition:
ISBN 1-4518-6696-8
Language:
English
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