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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
The Sharing of Macroeconomic Risk
Who Loses (and Gains) from Macroeconomic Shocks
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- Rudiger Ahrend, Jens Arnold1, Charlotte Moeser1
- Author Affiliations
- 1: OECD, France
- 01 July 2011
- Bibliographic information
This paper addresses the often neglected question of how macroeconomic risk is shared across and within economies, and identifies reforms that could contribute towards achieving more desirable risksharing outcomes. For risk-sharing across countries, the paper discusses possibilities for international insurance as well as shock-spreading and risk-mitigating policies. Within countries, it assesses the possibilities for individuals to protect their wealth, labour and capital income against various forms of macroeconomic risk and discusses the desirable boundaries between private and government-sponsored risk-sharing institutions. The paper then presents new empirical and model-based evidence about how the short-term impact of selected macroeconomic shocks (including financial crises) is shared across different groups of agents, and analyses how such distributional effects are shaped by differences in institutions. For example, individuals on low incomes, and especially young people, seem in general to lose most from adverse macroeconomic shocks. Also, it appears that across countries two broad types of institutions can be identified that facilitate risk sharing between high and low income earners, namely "social protection" and "reallocation-facilitating" institutions. Based on countries’ reliance on these types of institutions, four broad "models" of risk sharing are identified across the OECD and the BRIICS.
- wealth, institutions, financial crises, macroeconomic shock, income, insurance, redistribution, DSGE, risk sharing
- JEL Classification:
- D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions
- D63: Microeconomics / Welfare Economics / Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- E60: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / General
- F55: International Economics / International Relations, National Security, and International Political Economy / International Institutional Arrangements
- G22: Financial Economics / Financial Institutions and Services / Insurance ; Insurance Companies ; Actuarial Studies
- H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government
- I38: Health, Education, and Welfare / Welfare, Well-Being, and Poverty / Government Policy ; Provision and Effects of Welfare Programs