Risk Sharing Opportunities and Macroeconomic Factors in Latin American and Caribbean Countries : A Consumption Insurance Assessment

Risk Sharing Opportunities and Macroeconomic Factors in Latin American and Caribbean Countries : A Consumption Insurance Assessment

This paper evaluates the degree of consumption insurance enjoyed by Latin American and Caribbean countries, with respect to various reference areas, by estimating a parameter expressing the sensitivity of a country's consumption growth to a me...

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Bibliographic Details
Main Author:	Ventura, Luigi
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING AGGREGATE COMPONENT AGGREGATE CONSUMPTION AGGREGATE GROWTH AGGREGATE INCOME BANKING SYSTEM BUFFER BUSINESS CYCLES CHANGE IN CONSUMPTION CLARITY CONSUMPTION EXPENDITURE CONSUMPTION EXPENDITURES CONSUMPTION FLUCTUATIONS CONSUMPTION GROWTH CONSUMPTION SMOOTHING CONTROL VARIABLES CORRELATION COEFFICIENTS COUNTRY LEVEL CURRENCY CURRENCY CRISES DEBT DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISCOUNT RATE DISCOUNT RATES DISTRIBUTION OF INCOME DOMESTIC CONSUMPTION DOMESTIC CREDIT DUMMY VARIABLE ECONOMETRIC ANALYSIS ECONOMIC GROWTH ECONOMIC PERSPECTIVES ECONOMIC REVIEW EMERGING MARKET ECONOMIES EMPIRICAL ANALYSIS EMPIRICAL RESULTS EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE REGIME EXCHANGE RATE REGIMES EXCHANGE REGIME EXPECTED UTILITY EXPLANATORY POWER EXPLANATORY VARIABLE FINANCIAL CRISIS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL FLOWS FINANCIAL INTEGRATION FINANCIAL MARKETS FIXED EFFECTS FLOATING EXCHANGE RATE FLOATING EXCHANGE RATE REGIME FOREIGN ASSETS FOREIGN DIRECT INVESTMENTS FOREIGN FINANCIAL MARKETS GDP GLOBALIZATION GROWTH MODEL GROWTH RATE GROWTH RATES HOUSEHOLD CONSUMPTION INCOME GROWTH INCOME SHOCKS INCOME SMOOTHING INCREASING INEQUALITY INDEBTEDNESS INDIVIDUAL COUNTRIES INEQUALITY INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL DIVERSIFICATION INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL MACROECONOMICS INTERNATIONAL OPENNESS LATIN AMERICAN LEVELS OF INVESTMENTS LIQUIDITY LOW INCOME M3 MACROECONOMIC ANALYSES MACROECONOMIC FACTORS MACROECONOMIC VARIABLES MARGINAL UTILITY MARKET CAPITALIZATION MARKET RATES MEAN VALUE MICROECONOMIC ANALYSES MONETARY ECONOMICS MONEY MARKET NATIONAL INCOME NEGATIVE SHOCKS OUTPUT GAP PER CAPITA CONSUMPTION PER CAPITA CONSUMPTION GROWTH PER CAPITA INCOME PER CAPITA INCOMES POLICY RESEARCH POLITICAL ECONOMY POSITIVE RELATIONSHIP POSITIVE SHOCKS PRIVATE SECTOR PUBLIC CONSUMPTION PUBLIC EXPENDITURE PUBLIC EXPENDITURES RAPID INCREASE RATE OF GROWTH REAL EXCHANGE RATES REAL GDP REAL INCOME REAL INTEREST RATE REAL INTEREST RATES RELATIVE IMPACT REPRESENTATIVE AGENT RISK AVERSION RISK SHARING SAVINGS SIGNIFICANT CORRELATION SMOOTHING CONSUMPTION STANDARD DEVIATION STANDARD DEVIATIONS STOCK MARKETS SUB-SAHARAN AFRICA T-VALUE TOTAL CONSUMPTION TRADE OPENNESS TREASURY BILL TREASURY BILLS TRINIDAD AND TOBAGO UNCERTAINTY UPWARD PRESSURE UTILITY FUNCTION UTILITY FUNCTIONS WEALTH WORLD DEVELOPMENT INDICATORS
Online Access:	http://documents.worldbank.org/curated/en/2008/01/8966564/risk-sharing-opportunities-macroeconomic-factors-latin-american-caribbean-countries-consumption-insurance-assessment http://hdl.handle.net/10986/6473

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Summary:	This paper evaluates the degree of consumption insurance enjoyed by Latin American and Caribbean countries, with respect to various reference areas, by estimating a parameter expressing the sensitivity of a country's consumption growth to a measure of idiosyncratic shocks to income. The paper surveys common econometric implementations of "consumption insurance tests." The author proposes some econometric procedures in order to detect the actual presence of international risk sharing, as well as to assess the relative impact of idiosyncratic versus aggregate shocks. The evidence suggests that Latin American and Caribbean economies have been hit by non-diversifiable income shocks, that idiosyncratic risk is relatively more important than aggregate risk, and that some countries in the region appear to enjoy a certain amount of international risk diversification. The paper also identifies some macroeconomic factors that may be responsible for a higher or lower degree of risk pooling (such as international openness, financial depth, and credit availability). The findings show that the financial development of an economy is a crucial factor in determining the amount of risk sharing opportunities, as well as public expenditure. The preliminary results also suggest that trade openness and shocks to terms of trade play an important role in determining the degree of insurability of such risks.

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