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Giuseppe Cavaliere, Luca Fanelli and Attilio Gardini
''Consumption risk sharing and adjustment costs''
( 2009, Vol. 29 No.2 )
We show that full risk sharing may not be at odd with the idea that changes in regional consumption display error-correcting dynamics, in line with the idea that information and transaction costs stemming from interregional portfolio diversification and labor movements induced by permanent income shocks may delay the adjustment process. Using Italian data over the period 1960-2001 it is found that regional per capita consumptions match the proposed error-correcting structure.
Keywords: Consumption risk sharing, Adjustment costs, Forward-looking behavior
JEL: C3 - Time-Series Models
E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data)
Manuscript Received : Mar 26 2009 Manuscript Accepted : May 25 2009

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