Reconsidering consumption risk sharing among OECD countries: Some evidence based on panel cointegration

In this paper we provide a characterization of international consumption risk sharing among a sample of OECD countries based on panel cointegration and error-correction techniques. Our results indicate that around 30% of idiosyncratic consumption risks are shared in the short run. In the long run, however, only about 10% of idiosyncratic consumption risks are shared internationally. In addition, we find that countries characterized by relatively high foreign asset and liability positions are less exposed to shocks. Moreover, the time it takes until idiosyncratic shocks exert their full impact on consumption crucially depends on the foreign asset and liability position.