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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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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)

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:

Date	Event
24 October 2008	Published

Number:

No.874

Number of Pages:

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

Funder:

Fundação para a Ciência e a Tecnologia (FCT)

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