Publicação
Risk Aversion and Optimal Trade Dependency
| Resumo: | This paper shows that a HIC's optimal dependency on inter-national trade depends on the country's degree of risk aversion. Risk aversion affects optimal trade dependency directly through consumption smoothing across different states of the world (intratemporally) and indirectly through consumption smoothing across different time periods (intertemporally). When the probability of default is high (low) and the interest rate on consumption borrowing is greater (smaller) than the discount rate, optimal openness to international trade increases (decreases) with risk aversion while optimal consumption borrowing decreases (increases). Otherwise, results are uncertain. |
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| Autores principais: | Cabral, Célia Costa |
| Assunto: | Trade dependency Openness Risk Aversion |
| Ano: | 1996 |
| País: | Portugal |
| Tipo de documento: | working paper |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade Nova de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório Institucional da UNL |
| Resumo: | This paper shows that a HIC's optimal dependency on inter-national trade depends on the country's degree of risk aversion. Risk aversion affects optimal trade dependency directly through consumption smoothing across different states of the world (intratemporally) and indirectly through consumption smoothing across different time periods (intertemporally). When the probability of default is high (low) and the interest rate on consumption borrowing is greater (smaller) than the discount rate, optimal openness to international trade increases (decreases) with risk aversion while optimal consumption borrowing decreases (increases). Otherwise, results are uncertain. |
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