Regional risksharing

This paper studies a variety of moments associated with the degree of risksharing for a set of 47 Japanese regions. The moments are compared to those for a group of 20 OECD countries. One striking observation is a low average consumption correlation across regions, exactly identical to that across countries. The paper aims at understanding this finding within the context of a multi-region model with two types of agents, capital owners and labor. Capital owners hold well diversified claims across the regions, while labor has at most access to a riskless bond. The model can account for the observed low average consumption correlation across regions, although its ability to account for a variety of other 'risksharing moments' is mixed. The model is also able to generate a consumption variability of capital owners that is significantly higher than that of workers, consistent with a finding by Mankiw and Zeldes for US stockholders and non-stockholders.