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:	32
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Fundação para a Ciência e a Tecnologia (FCT)

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