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- Title
International risk sharing and commodity prices.
- Authors
Berka, Martin; Crucini, Mario J.; Wang, Chih-Wei
- Abstract
Cole and Obstfeld (1991) exposited a classic result where equilibrium movements in the terms of trade could make ex ante risk-sharing arrangements unnecessary: a unity elasticity of substitution across goods and production specialization. This paper extends their model to N countries and M commodities ( N > M). Here the terms of trade provides insurance against commodity-specific shocks, not country-specific shocks. Using commodity-level production data at the national level and world commodity prices, we document significant terms of trade variability and positive responses of nation-specific production to terms of trade improvements. The endogenous terms of trade insurance mechanism highlighted in CO is virtually non-existent.
- Subjects
RISK sharing; PRICES; INTERNATIONAL economic assistance; INSURANCE; ELASTICITY (Economics); ECONOMIC equilibrium
- Publication
Canadian Journal of Economics, 2012, Vol 45, Issue 2, p417
- ISSN
0008-4085
- Publication type
Article
- DOI
10.1111/j.1540-5982.2012.01706.x