Rieger, Jörg
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Abstract
In this paper we study the effects of financial integration on risk-sharing. Conventional macroeconomic theory suggests that the integration of financial markets improves welfare. In contrast to the literature we assume that households have heterogeneous beliefs. Because of the differences in beliefs, households are not only sharing the risk but also speculating. We show that with speculation, financial integration can increase the risk in the economy and that a full financial integration is not always beneficial. We also have a numerical example for a small set of countries and show that the losses due to heterogeneous beliefs are small.
Document type: | Working paper |
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Series Name: | Discussion Paper Series, University of Heidelberg, Department of Economics |
Volume: | 0568 |
Place of Publication: | Heidelberg |
Date Deposited: | 18 Jun 2014 11:51 |
Date: | June 2014 |
Number of Pages: | 26 |
Faculties / Institutes: | The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics |
DDC-classification: | 330 Economics |
Uncontrolled Keywords: | Heterogeneous Beliefs, Financial Integration, Incomplete Markets |
Series: | Discussion Paper Series / University of Heidelberg, Department of Economics |