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Sharing asymmetric tail risk: smoothing, asset pricing and terms of trade

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Crises and tail events have asymmetric effects across borders, raising the value of arrangements improving insurance of macroeconomic risk. Using a two-country DSGE model, we provide an analytical and quantitative analysis of the channels through which countries gain from sharing (tail) risk.

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Sharing asymmetric tail risk: smoothing, asset pricing and terms of trade

Crises and tail events have asymmetric effects across borders, raising the value of arrangements improving insurance of macroeconomic risk. Using a two-country DSGE model,