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Working Paper

Risk Sharing of Disaggregate Macroeconomic and Idiosyncratic Shocks

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We estimate the extent to which idiosyncratic and disaggregate macro shocks (such as regional and industry shocks) are not shared in the economy. Comparing the degree to which idiosyncratic and disaggregate macro shocks are not shared grants a deeper understanding as to why the economy lacks in specific areas of risk sharing arrangements. As well, it can point to areas where the economy’s risk sharing capability can be enhanced. Using household data from the Panel Study of Income Dynamics, we find that a negligible amount of risk (around 10%) is shared in the aggregate, about 50% is shared within regions and industries, while the remaining 40% is not shared with other households. These findings suggest that given the low level of international risk sharing, increased international integration may not lead to a significant increase in international risk sharing.
12.01.1999ISSN 2573-7953 WP 99-15DOI 10.26509/frbc-wp-199915
Keywords risk sharing, quantity anomaly
JEL Classification Codes E21

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Hess, Gregory, and Kwanho Shin. 1999. “Risk Sharing of Disaggregate Macroeconomic and Idiosyncratic Shocks.” Federal Reserve Bank of Cleveland, Working Paper No. 99-15. https://doi.org/10.26509/frbc-wp-199915