Asset price data imply a large degree of international risk sharing, while aggregate consumption data do not. We evaluate whether a model with trade in goods and endogenously segmented asset markets accounts for this puzzling discrepancy. Active households pay a fixed cost to transfer income...

Asset price data imply a large degree of international risk sharing, while aggregate consumption data do not. We evaluate whether a model with trade in goods and endogenously segmented asset markets accounts for this puzzling discrepancy. Active households pay a fixed cost to transfer income...

Accounting for the pervasive evidence of limited international risk sharing is an important hurdle for open-economy models, especially when these are adopted in the analysis of policy trade-offs likely to be affected by imperfections in financial markets. Key to the literature is the evidence,...

Recent contributions have shown that it is possible to account for the so-called consumption-real exchange anomaly in models with goods market frictions where international asset trade is limited to a riskless bond. In this paper, we consider a more realistic international asset market structure...