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| Author: | Kocherlakota, N.R. Pistaferri, L. |
| Title: | Household heterogeneity and real exchange rates |
| Journal: | Economic Journal
2007 : MAR, VOL. 117:519, p. C1-C25 |
| Index terms: | cross-sectional models consumption exchange rates economic shocks household economics United Kingdom USA |
| Language: | eng |
| Abstract: | The study assumes that individuals can fully insure themselves against cross-country shocks but not against individual-specific shocks. Two particular models of limited risk-sharing are considered: domestically incomplete markets (DI) and private information-Pareto optimal (PIPO) risk-sharing. For each model, a restriction relating the cross-sectional distributions of consumption and real exchange rates is derived. These restrictions are evaluated using household-level consumption data from the US and the UK. It is shown that the PIPO restriction fits the data well when households have a coefficient of relative risk aversion of around 5. |
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