Financial openness and business cycle volatility

Buch, Claudia M.; Doepke, Joerg; Pierdzioch, Christian

doi:10.1016/j.jimonfin.2005.04.002

Cited by 105 publications

(84 citation statements)

References 39 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Therefore, this finding further challenges the earlier finding of Rodrik (1998), Stiglitz (2000, Blankenau et al (2001), Razin et al (2003), Kalemli Ozcan et al (2003, Arora andVamvakidis (2004), Schmukler (2004a;2004b), Aghion et al (2004) and Buch et al (2005), for instance and adds to the existing literature that both financial and trade openness tend to reduce economic volatility and instil economic stability. This shows that financial openness may act as a medium of international risk sharing rather than the medium of contagion and increase investment portfolio diversification, while trade openness may further improve resource allocation, lower consumers' prices and lead to more efficient production, thus reducing volatility.…”

Section: The Findingscontrasting

confidence: 76%

“…This also shows that, financial market liberalisation may open new channels for the entry of foreign capital which consequently leads to appreciating real exchange rates and a rapid expansion of bank lending and, thus, increasing the chances of economic overheating and vulnerability to a turnaround in capital flows. This argument is supported by Buch et al (2005) who contend that the link between financial openness and volatility has not been stable over time for 24 OECD countries from 1960 until 2000.…”

Section: Selected Literaturementioning

confidence: 97%

See 1 more Smart Citation

Can Greater Openness and Deeper Financial Development Drag ASEAN-5 into Another Series of Economic Crises?

Samsudin¹

2016

ASS

View full text Add to dashboard Cite

In the event of economic crises, it is observed that economic volatility becomes more severe. Therefore, the aim of this study is to examine the impact of greater openness and deeper financial sector development in influencing the level of economic volatility which could trigger economic crises in both long-and short-run periods in the case of ASEAN-5 countries, namely Indonesia, Malaysia, Philippines, Singapore and Thailand. Given that more attention is needed to address the issue, the Pooled Mean Group (PMG) estimations developed by Pesaran et al. (1999) and data ranging from 1980 to 2014 were employed to address the issue. With the ability to estimate short-run coefficients at each country level and its speed of adjustment, this study further fills the knowledge gap. Based on the analysis, it is found that greater trade and financial openness may further relax economic volatility in the long-run, suggesting greater international risk sharing which soothes consumption shocks. In terms of the effect of financial development towards economic volatility, it is found that only deeper banking sector development may reduce economic volatility in the long-run, but the same may not apply in the case of greater stock market development. Particularly, it is suggested that it is in the nature of developments in the banking sector to likely provide longer financing options and greater banker capabilities in detecting riskier investments, thus giving a favourable impact on economic volatility. It is a contrast with the stock market sector where it is more likely to be more susceptible towards large and sudden capital outflows. Its tendency to provide capital towards riskier investments may worsen volatility in the longer term. Nevertheless, in the short-run, the effects of greater openness and financial development is not as obvious as in the long-run; financial openness and greater stock market sector development may significantly relax economic volatility. As suggested by the speed of adjustment, the equilibrium from short-run to long-run is corrected by 1.71% and 2.33% in a year. Cumulatively, it can be said that there is no evidence that greater openness and deeper financial development may drag ASEAN-5 into another series of crises except in the case of stock market sector development. Therefore, the source of instability in the region is likely to be driven from greater stock market sector development rather than greater openness and banking sector development.

show abstract

Section: The Findingscontrasting

confidence: 76%

Section: Selected Literaturementioning

confidence: 97%

Can Greater Openness and Deeper Financial Development Drag ASEAN-5 into Another Series of Economic Crises?

Samsudin¹

2016

ASS

View full text Add to dashboard Cite

show abstract

“…Easterly et al (2001) additionally showed that increase trade openness (another key feature of growing economic interactions) has significant impact on output volatility among developing economies. Buch et al (2005) further determined that the link between financial openness (an element of exposure) and business cycle volatility among economies depend on the nature of underlying shocks economies are exposed to.…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic Volatility and Macroeconomic Indicators among Sub-Saharan African Economies

Abaidoo¹

2012

IJEF

View full text Add to dashboard Cite

This study explored how disaggregated macroeconomic volatility parameters impact key macroeconomic indicators in Sub-Saharan Africa. The study employed a number of external and regional macroeconomic volatility parameters derived from macroeconomic data sourced from the IMF in its empirical analysis. Dynamic Panel fixed effect model employed show that regional macroeconomic volatility parameters tend to have more statistically significant impact (positive and negative) on performance indicators in the sub-region than external macroeconomic volatility parameters. This study also finds that among regional macroeconomic volatility parameters shaping growth conditions in the sub-region, investment growth volatility is the dominant condition with statistically significant impact on key macroeconomic indicators in the sub-region. Results further point to evidence of significant moderating effects in how external and regional macroeconomic volatility parameters impact regional macroeconomic indicators.

show abstract

“…They cover good policy, good luck and good practices. The first point usually refers to improvements in monetary policy (Clarida et al 2000), the second stresses good luck in terms of smaller and fewer shocks (Stock & Watson 2002), while the third regards changes in the economic structure like sectoral shifts (Buch et al 2004), globalisation and openness to trade (Buch 2002, Cavallo & Frankel 2008, technological developments (Arias et al 2007), inventory management (Kahn et al 2002, Irvine & Schuh 2005, demographic changes (Jaimovich & Siu 2009) or financial openness and innovations (Buch et al 2005, Dynan et al 2006 as the main factors for the reduced cyclical volatility. Especially the latter were recently discussed in the course of the financial crisis and the global recession starting at the end of 2008.…”

Section: Introductionmentioning

confidence: 99%

On the Change in the Austrian Business Cycle

Bilek-Steindl¹

2012

OECD Journal: Journal of Business Cycle Measurement and Analysis

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper analyzes the change in the Austrian business cycle over time using data back to 1954. The change in the cyclical pattern is captured using a nonlinear univariate structural time series model where the time of the break point is estimated. Results for GDP series suggest a break in the frequency of the cycle and in the parameter covering the variance of the disturbances of the cycle taking place in the mid 70s and early 80s, respectively. Using data for GDP components a break in these variables is found too, but the timing of the break differs among the series. In a further step the paper assesses the relevance of these findings for forecasting purposes. It is shown that during certain periods the out-of-sample forecasting performance of GDP does improve when a break in one of the two parameters is explicitly modeled. Terms of use: Documents in

show abstract

Financial openness and business cycle volatility

Cited by 105 publications

References 39 publications

Can Greater Openness and Deeper Financial Development Drag ASEAN-5 into Another Series of Economic Crises?

Can Greater Openness and Deeper Financial Development Drag ASEAN-5 into Another Series of Economic Crises?

Macroeconomic Volatility and Macroeconomic Indicators among Sub-Saharan African Economies

On the Change in the Austrian Business Cycle

Contact Info

Product

Resources

About