Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/250322 
Year of Publication: 
2020
Series/Report no.: 
Cardiff Economics Working Papers No. E2020/12
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
We revisit the evidence on consumer risk-pooling and uncovered interest parity. Widely used singleequation tests are strongly biased against both. Using the full-model, Indirect Inference test, which is unbiased and has Goldilocks power by Monte Carlo experiments, we find that both the risk-pooling hypothesis and its weaker UIP version are generally accepted as part of a full world DSGE model.The fact that the risk-pooling hypothesis, with its implication of strong cross-border consumer linkage,has passed this test with generally the highest p-value, suggests that it deserves serious attention from policy-makers looking for a relevant model to discuss international monetary and other business cycle issues.
Subjects: 
Open economy
consumer risk-pooling
UIP
full-model test
IndirectInference
JEL: 
C12
E12
F41
Document Type: 
Working Paper

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