Template-Type: ReDIF-Paper 1.0
Author-Name: Giancarlo Corsetti
Author-X-Name-First: Giancarlo
Author-X-Name-Last: Corsetti
Author-Name: Anna Lipinska
Author-X-Name-First: Anna
Author-X-Name-Last: Lipinska
Author-Name: Giovanni Lombardo
Author-X-Name-First: Giovanni
Author-X-Name-Last: Lombardo
Title: International risk sharing and wealth allocation with higher order cumulants
Abstract: We study international risk sharing across countries differing in size, openness, and productivity distributions, emphasizing fat tails. In a canonical IRBC model, safer economies benefit through asset and terms-of-trade revaluations, while riskier ones smooth consumption at the cost of lower wealth. Calibrated to non-Gaussian shocks, country size and openness, the model predicts welfare gains between 0.03% and 6.9% of permanent consumption (median 6%). Assuming Gaussian shocks reduces gains by about 2 percentage points, while assuming equal country size and no home bias renders them negligible. Clustering economies by openness, size, and higher moments accounts for the cross-country distribution of gains.
Creation-Date: 2025-10
File-URL: https://www.bis.org/publ/work1293.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1293.htm
File-Format: text/html
Number: 1293
Keywords: asymmetries in risk, openness, country size, tail risk, gains from risk sharing, consumption smoothing, terms of trade, wealth transfers
Classification-JEL: F15, F41, G15
Handle: RePEc:bis:biswps:1293