OECD Economics Department Working Papers
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.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
The Sharing of Macroeconomic Risk
Who Loses (and Gains) from Macroeconomic Shocks
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.
Keywords: insurance, redistribution, macroeconomic shock, income, wealth, DSGE, institutions, risk sharing, financial crises
JEL:
G22: Financial Economics / Financial Institutions and Services / Insurance; Insurance Companies; Actuarial Studies;
D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions;
I38: Health, Education, and Welfare / Welfare, Well-Being, and Poverty / Welfare, Well-Being, and Poverty: Government Policy; Provision and Effects of Welfare Programs;
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 / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General;
H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government;
F55: International Economics / International Relations, National Security, and International Political Economy / International Institutional Arrangements
- Click to access:
-
Click to download PDF - 2.61MBPDF