TITLE:
Financial Innovation and Aggregate Risk Sharing
AUTHORS:
Rodrigo J. Hernandez, Pu Liu, Yingying Shao
KEYWORDS:
Financial Innovation, Consumption Smoothing, Income Insurance
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.11,
August
7,
2018
ABSTRACT: In this paper we examine the impact of financial
innovations on real economy. Based on data for US banks’ off-balance sheet
activities from 1995 to 2013, we
investigate aggregate
risk sharing in two different channels: Personal consumption smoothening and
personal income insurance. The results show that the use of financial innovations
contributes to a reduction in the exposure of personal income and consumption
to state-specific economic shocks, and the results suggest a positive role played by financial innovations in
real economy.