How large are potential benefits from global risksharing? In order to answer this question we propose a new methodology that is closely connected with the empirical growth literature. We obtain estimates of residual risk (growth uncertainty) at various horizons from regressions of country-specific growth in deviation from, world growth on a wide set of variables in the information set. Since this residual risk can be entirely hedged through risksharing, we use it to obtain a measure of the potential welfare gain'for' a representative country. We find that nations can reap very large benefits from, engaging in such risksharing arrangements.
This report has been published in Journal of Monetary Economics, Volume 45, Issue 3, pp.477-505
Athanasoulis, Stefano G. and Wincoop, Eric van, "Growth Uncertainty and Risksharing" (1997). ISU Economic Report Series. 42.