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Testing full consumption insurance in the frequency domain
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Santos-Monteiro, Paulo (2008) Testing full consumption insurance in the frequency domain. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.874).
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Abstract
Full consumption insurance implies that consumers are able to perfectly share risk by equalizing state by state their inter-temporal marginal rates of substitution in the presence of idiosyncratic endowment shocks. In this paper I test the implications of full consumption insurance using band spectrum regression methods. I argue that moving to the frequency domain provides a possible solution to many difficulties tied to tests of perfect risk sharing. In particular, it provides a unifying framework to test consumption smoothing, both over time and across states of nature. Full consumption insurance is soundly rejected at business cycle frequencies.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Consumption (Economics), Home economics, Risk assessment, Regression analysis -- Mathematical models | ||||
Series Name: | Warwick economic research papers | ||||
Publisher: | University of Warwick, Department of Economics | ||||
Place of Publication: | Coventry | ||||
Official Date: | 24 October 2008 | ||||
Dates: |
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Number: | No.874 | ||||
Number of Pages: | 32 | ||||
Status: | Not Peer Reviewed | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Funder: | Fundação para a Ciência e a Tecnologia (FCT) |
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