International risk sharing during the globalization era

Abstract

Abstract. Though financial globalization should improve international risk sharing, empirical support is lacking. We develop a simple welfare‐based measure that captures how far countries are from the ideal of perfect risk sharing. Applying it to data, we find some evidence that international risk sharing has improved during globalization. Improved risk sharing comes mostly from the convergence in rates of consumption growth among countries rather than from synchronization of consumption at the business cycle frequency.