Template-Type: ReDIF-Paper 1.0
Author-Name: Emile A. Marin
Author-Name-First: Emile A.
Author-Name-Last: Marin
Author-Name: Sanjay R. Singh
Author-Name-First: Sanjay R.
Author-Name-Last: Singh
Author-Workplace-Name: Department of Economics, University of California Davis
Title: Low Risk Sharing with Many Assets
Abstract: Classical contributions in international macroeconomics reconcile low international risk sharing by generating a non-traded component to exchange rates. However, when there is cross-border trade in just one domestic and one foreign-currency-denominated risk-free asset, such price movements are ruled out by no-arbitrage restrictions. Allowing for within-country heterogeneity in stochastic discount factors, we recover low risk-sharing even with cross-border trade in two risk-free assets, as long as heterogeneity increases when exchange rates depreciate.
Length: 52
File-URL: https://repec.dss.ucdavis.edu/files/oli7yn3748xg64gzgw9oggwf3yzl/MarinSingh_LRSMA.pdf
File-Format: application/pdf
Number: 361
Classification-JEL: E32, F31, F44, G15
KeyWords: international risk sharing, incomplete financial markets, exchange rates, heterogeneous agents
Creation-Date: 20231203
Handle: RePEc:cda:wpaper:361