Incomplete Intertemporal Consumption Smoothing and Incomplete Risksharing

This paper develops a method to estimate jointly the degree of intertemporal consumption smoothing and the degree of ¡±interregional¡± risksharing. The empirical results for the US states and OECD and EU countries suggest that: 1) regardless of the assumption on the degree of intertemporal consumption smoothing, the degree of risksharing within a country is larger than across countries; 2) the degree of intertemporal consumption smoothing within a country is also larger than across countries; 3) The difference between the degree of intertemporal consumption smoothing within US states and across OECD and EU countries is as large as the difference between the degree of risksharing, contrary to the findings of some past studies.