The aim of this work is to determine whether increasing goods and ¢nancial market integration raises or lowers macroeconomic volatility. Shocks to money, government expenditure, and labour supply are analysed under di¡erent degrees of goods and ¢nancial market integration in a dynamic general equilibrium framework. Simulations show that the e¡ects of the di¡erent shocks on economic volatility change signi¢cantly depending on the presence of incompletely integrated goods and/or ¢nancial markets. However, the results suggest that the e¡ect of integration in one market is largely independent of the extent of integration in the other market. " IntroductionGiven the importance of market integration in Europe and the concern for macroeconomic stabilization, it is important to determine whether integration raises or lowers macroeconomic volatility in the face of economic disturbances. In this paper goods and ¢nancial market integration are modelled and changes in the stabilizing roles played by di¡erent macroeconomic variables in response to disturbances to the economy under di¡erent degrees of goods and ¢nancial market integration are investigated.The paper will extend theoretical models of intertemporal consumption smoothing to incorporate incomplete integration in goods and ¢nancial markets within a setting where nominal rigidities and imperfect competition exist. The theoretical framework of the model is based on the work of Obstfeld and Rogo¡ (1995) which incorporates nominal rigidities and imperfect competition into an intertemporal optimizing framework. Obstfeld and Rogo¡ assume purchasing power parity (PPP) and no impediments to trade in goods markets and integrated world capital markets. The basic objective of this paper is to extend this framework by

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The welfare properties of monetary policy regimes for a country subject to foreign money shocks are examined in a two-country sticky-price model. Money targeting is found to be welfare superior to a fixed exchange rate when the expenditure switching effect of exchange rate changes is relatively weak, but a fixed rate is superior when the expenditure switching effect is strong. However, price targeting is superior to both these regimes for all values of the expenditure switching effect. A welfare-maximising monetary rule yields lower output and exchange rate volatility than price targeting for a wide range of parameter values. Copyright The editors of the "Scandinavian Journal of Economics" 2007 .

This paper evaluates the relationship between a country's openness to trade and the effectiveness of monetary policy in changing output growth and inflation in 29 different countries. Using quarterly data from the 1957-2003 period, empirical estimates based on individual country specifications show that the direction, significance and nature of the relationship between openness and the effectiveness of monetary policy on output growth as well as inflation vary considerably across countries.

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