Growth uncertainty and risksharing
By: Stefano Athanasoulis and Eric van Wincoop.
Contributors: Van Wincoop, Eric; Federal Reserve Bank of New York.
Series: Staff reports ;; no. 30; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 30.
Publisher: Federal Reserve Bank of New York
Published: 1997
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Risk management -- Mathematical models.; Uncertainty -- Mathematical models.; Economic development -- Mathematical models.
Description: "We propose a new methodology to evaluate the gains from global risksharing that is closely connected to the empirical growth literature.  We obtain estimates of residual risk (growth uncertainty) at various horizons from regressions of country-specific deviations from world growth on a wide set of variables in the information set.  Since this residual risk can be entirely hedged, we use it to obtain a measure of welfare gain that can be achieved by a representative country.  We find that nations can reap very large benefits from engaging in such risksharing arrangements.  Using post-war data, the gain for a 35-year horizon, corresponding to an equivalent permanent increase in consumption, is 6.6% when based on a set of 49 countries, and 1.5% when based on 21 OECD countries.  Using historical data from 1870 to 1990, we find that the potential gain for a 120-year horizon ranges from 4.9% for a small set of rich countries to 16.5% for a broad set of 24 countries"--Federal Reserve Bank of New York web site.
Notes: Includes bibliographical references.
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