International Financial Integration and the Real Economy

Abstract

What are the consequences of …nancial integration for the real economy? This paper develops a set of theoretical benchmarks for the link between integration and macroeconomic volatility and welfare. The analysis is conducted in a standard two-sector international real business cycle model in which we introduce dynamic portfolio choice over equities and an international bond. The model predicts an increase in the volatility of output in response to integration, while the relation between integration and consumption volatility is hump-shaped. We also …nd that …nancial integration is associated with signi…cant improvement in risk-sharing across countries, although in aggregate the welfare bene…ts are very small. At the same time, the level of …nancial integration signi…cantly a¤ects how the welfare bene…ts of productivity shocks are distributed internationally. JEL Classi…cation: D52; F36; G11.

The Effect of Financial Liberalization and Capital Flows on Income Volatility in Asia-Pacific

“…Where the estimation results for the slope dummy interaction (FI × Asia developed countries) in GDP and GNP volatility are as follows (slope dummy interaction -slope financial openness): -0.0036 and -0.0025. However, these results are consistent with research from Mirdala et al (2015), Evans and Hnatkovska (2007), Neaime ( 2005)and Kose et al (2003) which explains the existence of financial openness in developing countries has increased the degree of income volatility. On the other hand, the existence of financial openness is only advantageous for developed countries.…”

Does inflation targeting matter for output growth? Evidence from industrial and emerging economies

“…Although the general issue of collateral benefits having an impact on GDP has been conjectured by Kose et al (2006), we are not aware of empirical work focusing on any benefits of monetary policy jointly with advances in the globalization of financial flows. The availability of the Lane and Milesi-Ferretti (2007) data and of recent theoretical constructions by Kose et al (2006) and Evans and Hnatkovska (2007) make the proposed research route worth exploring. In this paper we examine the effects of IT on income per capita growth using separate samples of industrial and emerging economies that have been facing increasing trade and financial integration.…”

Order flows and the exchange rate disconnect puzzle

“…In these cases, the h n t term identi…es the expected returns on other assets and the hedging demand induced by the exposure of the agent's future income to exchange-rate risk. Alternatively, the representation in (4) could be derived as an approximation to the optimal currency demand implied by an intertemporal portfolio choice problem, as in Evans and Hnatkovska (2007). In this case the h n t term would also incorporate the e¤ects of variations in the agent's wealth.…”