Cover IMF Working Papers
Pooling Risk Among Countries
Author:
Mr. Jean Imbsnull

Search for other papers by Mr. Jean Imbs in
Current site
Google Scholar
PubMedClose
and
Mr. Paolo Mauro
Search for other papers by Mr. Paolo Mauro in
Current site
Google Scholar
PubMedClose
Series:
IMF Working Papers
Volume/Issue:
Volume 2007: Issue 132
Language:
English
Publication Date:
01 Jun 2007
DOI:
https://doi.org/10.5089/9781451866964.001
ISBN:
9781451866964
ISSN:
1018-5941
Pages:
50
Keywords:
WP; growth rate; exchange rate; welfare gain; A. risk sharing; diversification benefit; risk-sharing gain; pooling gain; Poolwide growth; Emerging and frontier financial markets; Income; Exchange rates; Financial integration; Trade integration; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (475 KB) Download Epub
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.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2007: Issue 132