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A structural approach to measuring the degree of economic integration: Evidence from G-7 countries

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  • Aysun, Uluc

Abstract

This paper infers the degree of economic integration amongst G-7 countries by estimating a two country DSGE model separately for each country in the group. In doing so, the two economies in the model are represented by the observations for a specific country and the corresponding values for the rest of G-7. To infer the degree of economic integration, the model’s shock processes are reconfigured so that they include a component that is common for each economy and shocks can be transmitted from one economy to the other. Capturing the degree of economic integration by the relative contribution of common and foreign shocks to the variation of domestic variables, the paper draws inferences that are at odds with those based on more traditional measures of globalization. Countries that are more open to trade and financial flows in the data are ranked lower in terms of economic integration according to post-estimation statistics.

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  • Aysun, Uluc, 2022. "A structural approach to measuring the degree of economic integration: Evidence from G-7 countries," Journal of International Money and Finance, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:jimfin:v:124:y:2022:i:c:s0261560622000353
    DOI: 10.1016/j.jimonfin.2022.102632
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    More about this item

    Keywords

    Economic integration; DSGE; Open economy; G-7; Bayesian estimation;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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