Essays on International Risk Sharing and Consumption Fluctuations in Developing Countries

The goal o f this dissertation is to cast useful light on the reasons why consumption fluctuations in developing countries are larger than in industrial countries. More specifically, we examine the extent to which consumption fluctuations increase because o f problems with an incomplete international risk-sharing system. These problems include willingness-to-pay debt constraints and debt contracts where output information is private information. We propose a hypothesis that the consumption fluctuations in the developing countries are larger because o f the presence o f incomplete international risk-sharing system problems. We use Real Business Cycle models to investigate this hypothesis. With the empirical results, we find that willingness-to-pay debt constraints do not amplify consumption sufficiently to account for the large fluctuations found in developing countries. We also find that a willingness-to-pay debt constraint has little effect and the private information-output contract has a strong effect.

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