Banks, financial markets, and international consumption risk sharing

Leibrecht, Markus and Scharler, Johann (2009) Banks, financial markets, and international consumption risk sharing. Department of Economics Working Paper Series, 128. Department of Economics, WU Vienna University of Economics and Business, Vienna.


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In this paper we empirically explore how characteristics of the domestic financial system influence the international allocation of consumption risk using a sample of OECD countries. Our results show that the extent of risk sharing achieved does not depend on the overall development of the domestic financial system per se. Rather, it depends on how the financial system is organized. Specifically, we find that countries characterized by developed financial markets are less exposed to idiosyncratic risk, whereas the development of the banking sector contributes little to the international diversification of consumption risk. We also find that countries with market-based financial systems manage to share a significantly larger fraction of their country-specific risk than bank-based economies.

Item Type: Paper
Keywords: international risk sharing / financial development / financial system
Classification Codes: RVK QK 000, QK 600 ; JEL F36, F41
Divisions: Departments > Volkswirtschaft
Depositing User: Repository Administrator
Date Deposited: 02 Jun 2009 09:29
Last Modified: 22 Oct 2019 00:41


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