On the empirics of international smoothing

We apply the above methodology to a panel of 23 OECD countries in the period from 1955 to 2005. The main finding is consistent with the puzzle of negligible international risksharing, as domestic consumption growth - once properly analyzed - does not depend on aggregate income growth. Our analysis shows that industrial countries have tended to absorb output shocks mostly through intertemporal smoothing. About 25% of all temporary shocks are smoothed this way, while a comparable fraction of permanent shocks determine consumption growth.