Research Discussion Papers, Bank of Finland
No 8/1997:
Incomplete Insurance Market and Its Policy Implications within European Monetary Union
Jarkko Jääskelä
Abstract: The purpose of this discussion paper is to consider
consumption insurance and its various channels at the level of the
individual and at the level of the economy as a whole in the context of the
European Monetary Union. First we introduce a theoretical framework to
derive implications of international risksharing and review the empirical
work on the subject. We conclude that the efficient pooling of consumption
risks is not the feature of real world. Second, we discuss of potential
market imperfections and the extent to which the current market structure
can offer consumption insurance. Finally, we discuss relevant policy
implications of incomplete insurance market. Two arrangements are under
consideration: fiscal federalism from the point of view of insurance
arrangement and a proposition for opening new risksharing markets.
Keywords: consumption insurance; capital markets; labour mobility; labour contracts; fiscal federalism; financial innovations; (follow links to similar papers)
86 pages, June 3, 1997
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