Asymmetric volatility spillovers and consumption risk-sharing

Abstract

Recent studies show that international financial integration facilitates cross-country consumption risk-sharing. We extend this line of research and demonstrate that breaking financial integration down into good and bad integration is important. We also propose new measures of capital market integration, based on good and bad volatility shocks, as well as country-specific indices of consumption risk-sharing. We document a decoupling of individual consumption growth from global risk-sharing after episodes of bad volatility cross-spillovers, and a recoupling after good spillovers. Our results support current views in the literature that advocate an asymmetric treatment of good and bad volatility shocks, in order to assess the macroeconomic dynamics that follow risk episodes. They also challenge previous views that present capital market integration (without differentiating between good and bad shocks) as a prerequisite for higher international consumption risk-sharing. Overall, our outcomes cast some doubt on the actual scope for consumption risk-sharing across global financial markets.

Spillover Effects of Energy Transition Metals in Chile

“…The price of lithium has been on the rise over the past 40 years and it has skyrocketed since the second semester of 2021 (Trading Economics, 2022), as highlighted in Figure 5. In addition, lithium prices (carbonate and hydroxide) have probably experienced bubble episodes, particularly from the end of 2015 to the end of 2018, and in the case of European hydroxide, the bubble was felt as recently as September 2020 (see Uribe et al, 2021). Currently, there is a pronounced dominance of lithium technology in Southeast Asia along with a signi…cant share in metal consumption (Zícari et al, 2019).…”

Risk Spillovers between Global Corporations and Latin American Sovereigns: Global Factors Matter

“…For instance, it helps achieve more investment opportunities and better chances for risk sharing, which stimulates financial market deepening. This in turn increases economic stability and resilience (Bekaert et al 2006; Uribe and Chuliá, 2021). However, the benefits of financial integration are not cost-free.…”