International risk sharing with heterogeneous firms

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This paper explores international consumption risk sharing in an open economy macro model with firm heterogeneity and shows that firm entry and the self-selection of more efficient firms into exporting account for better international risk sharing. I show analytically that the conventional unconditional correlation between relative consumption and the real exchange rate is not a good metric for measuring international consumption risk sharing. World trade data covering more than two decades indicate that the extent of international risk sharing is underestimated.

Original languageEnglish
Article number102503
JournalJournal of International Money and Finance
Publication statusPublished - 2022 Feb


  • Exchange rate
  • Firm heterogeneity
  • International risk sharing
  • Product quality

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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