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Andras Lengyel

4 October 2023
WORKING PAPER SERIES - No. 2849
Details
Abstract
In this paper, we assess how risk-sharing channels have evolved over time in the United States and the Euro Area, and whether they have operated as ‘complements’ or ‘substitutes’. In particular, we focus on the capital channel (income from cross-border ownership of productive assets), the credit channel (interstate or cross-country bank lending), and the fiscal channel (federal or international fiscal transfers). We offer three main contributions. First, we propose a time-varying parameter panel VAR model, with stochastic volatility, which allows us to formally quantify time variation in risk-sharing channels. Second, we develop a new test of the complementarity vs. substitutability hypothesis of the three risk-sharing channels, based on the correlation between the impulse responses of these channels to idiosyncratic output shocks. Third, for the United States, we explain time variation in the risk-sharing channels based on some key macroeconomic and financial variables.
JEL Code
C11 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Bayesian Analysis: General
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles