Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Banks, Financial Markets and International Consumption Risk Sharing
() and Johann Scharler
Abstract: 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.
JEL-Codes: F36; F41; (follow links to similar papers)
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