Research ArticleOpen AccessGoogle Scholar indexed
Financial Innovation and Aggregate Risk Sharing
Radford University, Radford, USA
Department of Finance, Sam M. Walton College of Business, University of Arkansas, Fayetteville, USA
Department of Finance, College of Business and Economics, Towson University, Towson, USA
- 1 Radford University, Radford, USA
- 2 Department of Finance, Sam M. Walton College of Business, University of Arkansas, Fayetteville, USA
- 3 Department of Finance, College of Business and Economics, Towson University, Towson, USA
Theoretical Economics Letters·Volume 08 (2018)·Pages 2182–2198·Published 20 July 2018·DOI10.4236/tel.2018.811143
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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.
KeywordsFinancial InnovationConsumption SmoothingIncome Insurance
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