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Consumption Risk‐Sharing within Australia and with New Zealand*
Author(s) -
KIM DAVID,
SHEEN JEFFREY
Publication year - 2007
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2007.00375.x
Subject(s) - economics , welfare , consumption smoothing , consumption (sociology) , capital (architecture) , geography , macroeconomics , market economy , social science , sociology , archaeology , business cycle
We quantify how output risks are smoothed within Australia, and between Australia and New Zealand. About 90 per cent of shocks were smoothed within Australia through credit and capital markets, with fiscal policy a source of dis‐smoothing after 1992. Risk‐sharing between Australia and New Zealand was greater than within Europe, occurring mostly through credit markets. Fully integrated financial markets between Australia and New Zealand before 1983 would have yielded a welfare gain of 8.9 per cent of certainty‐equivalent consumption for New Zealand, but a loss of 1.7 per cent for Australia. These gains (losses) were largely resolved by the deregulations and trade agreement of the early 1980s.