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Growth uncertainty and risksharing
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Growth uncertainty and risksharing

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  • Stefano Athanasoulis
  • Eric Van Wincoop

Abstract

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.

Suggested Citation

  • Stefano Athanasoulis & Eric Van Wincoop, 1997. "Growth uncertainty and risksharing," Staff Reports 30, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:30
    Note: For a published version of this report, see Stefano G. Athanasoulis and Eric van Wincoop, "Growth Uncertainty and Risksharing," Journal of Monetary Economics 45, no. 3 (June 2000): 477-505.
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    More about this item

    Keywords

    Risk; Economic history; Economic development;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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