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HomeChanging patterns of risk-sharing channels in the United States and the euro area
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In this paper, we assess how risk-sharing channels have evolved over time in the United States and the Euro Area, and whether they have operated as ‘complements’ or ‘substitutes’. In particular, we focus on the capital channel (income from crossborder ownership of productive assets), the credit channel (interstate or cross-country bank lending), and the fiscal channel (federal or international fiscal transfers). We offer three main contributions. First, we propose a time-varying parameter panel VAR model, with stochastic volatility, which allows us to formally quantify time variation in risk-sharing channels. Second, we develop a new test of the complementarity vs. substitutability hypothesis of the three risk-sharing channels, based on the correlation between the impulse responses of these channels to idiosyncratic output shocks. Third, for the United States, we explain time variation in the risk-sharing channels based on some key macroeconomic and financial variables.
- Published:
- Corporate author(s): European Central Bank
- Personal author(s): Cimadomo, Jacopo ; Giuliodori, Massimo ; Lengyel, Andras ; Mumtaz, Haroon
- Themes: Economy — Finance
- Subject: budget policy , capital transfer , cross-border dimension , economic model , euro area , financial risk , macroeconomics , price fluctuation , risk management , United States
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| ISSN 1725-2806 | ISBN 978-92-899-6214-8 | DOI 10.2866/943204 | Catalogue number QB-AR-23-086-EN-N |
- Released on EU publications website:
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