International Risk Sharing in Overlapping Generations Models

Authors

James Staveley-O'Carroll, Babson CollegeFollow
Olena M. Staveley-O'Carroll, College of the Holy CrossFollow

Document Type

Working Paper

Date of This Version

12-1-2018

Keywords

Backus-Smith, international portfolio choice, overlapping generations, risk sharing

JEL Classification

D52, F21, F41, G11, H55

Abstract

We present a solution to the Backus-Smith puzzle that, instead of relying on extreme parameter values or complex modeling assumptions, simply switches the framework from infinitely lived agents to overlapping generations. Young agents face non-diversifiable wage risk that leads to a low degree of risk sharing within each country. Subsequently, international price movements are not sufficient to achieve the high consumption-real exchange rate correlation produced in standard infinitely lived agent DSGE models.

Working Paper Number

1806

Recommended Citation

Staveley-O'Carroll, James and Staveley-O'Carroll, Olena M., "International Risk Sharing in Overlapping Generations Models" (2018). Economics Department Working Papers. Paper 179.
https://crossworks.holycross.edu/econ_working_papers/179