The research has two objective. One is to quantify the amount of risk sharing among OECD and European Community (EC) members, with the goal of assessing whether existing market and EC institutions provide sufficient insurance against country specific shocks. The other is to compare the degree of capital and credit market integration in the United States, a successful monetary union, with that of OECD and EC countries. The construction of a data set from 1966 to 1992 will be completed which includes data by country on net factor income flows, GDP, GNP, capital depreciation, personal income, corporate profits, etc. Then, a decomposition analysis of the cross-sectional variance in the Gross Domestic Product of OECD and European Community countries will be undertaken. Quantifying the amount of income and consumption smoothing achieved at various levels, within various groups of countries, during various time periods, and using various different frequencies will also be undertaken. Computer programs tailored specifically for the statistical methods employed in this project will be developed. This research is important because the results will increase the understanding of risk sharing mechanisms among OECD and European Community Countries. The comparison with the US experience will provide potential lessons for the process of European unification.
