Private risk sharing also manifests itself through loans taken out during a downturn to smooth out consumption. 25% of an economic shock is absorbed by the credit markets in the United States. All in all, something like 80% of an economic shock in the United States is absorbed before it can take its toll on consumption. Research in Canada produces similar findings.
7 Things look different in Europe, however. Here, it is mainly the credit markets which absorb economic shocks – and not particularly effectively at that. All told, only around 40% of a given shock is cushioned before it impacts on consumption. 8 Boosting the role played by the equity markets and their cross-border integration would thus contribute to improving risk sharing in Europe.