DP16178 Risk Sharing in Currency Unions: The Migration Channel

Author(s): Wilhelm K. Kohler, Gernot Müller, Susanne Wellmann
Publication Date: May 2021
Keyword(s): Currency Unions, Euro Area, Labour Migration, Migration rates, Risk Sharing
JEL(s): F22, F41, G15, J61
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16178

International risk sharing insulates consumption from country-specific business-cycle fluctuations. This matters for countries in currency unions who lack monetary autonomy. In the spirit of Mundell, we formally integrate migration as a distinct channel into the standard framework used to quantify risk sharing. Comparing the euro area and the US we find that migration contributes significantly to risk sharing across US states, but not across the euro area. We also present survey evidence showing that migration rates are about 20 times higher in the US. The overall amount of risk sharing in the US is higher by a factor of two.