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Financial Integration And Macroeconomic Volatility: New Evidence From Dsge Modeling

Author

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  • TAREK GHAZOUANI

    (Faculty of Economic Sciences and Management of Tunis, University of Tunis El-Manar, Tunisia)

  • RAMZI DRISSI

    (College of Islamic Economics and Finance, Umm Al-Qura University, Saudi Arabia3University of Carthage, Tunisia)

  • JAMEL BOUKHATEM

    (College of Islamic Economics and Finance, Umm Al-Qura University, Saudi Arabia4University of Tunis El-Manar, Tunisia)

Abstract

This paper provides a brief overview of theoretical and empirical literature on financial integration and macroeconomic volatility nexus highlighting how the degree of financial integration affects the volatility of macroeconomic fundamentals. Using a dynamic stochastic general equilibrium (DSGE) model, our findings show that: (i) higher degree of financial integration tends to decrease short-run volatility; (ii) following monetary policy shocks, financial integration increases nominal exchange rate and output volatility and reduces both nominal and real interest rates and consumption volatility; and (iii) in response to fiscal shocks, financial integration stabilizes all variables under the assumption of perfect capital mobility.

Suggested Citation

  • Tarek Ghazouani & Ramzi Drissi & Jamel Boukhatem, 2019. "Financial Integration And Macroeconomic Volatility: New Evidence From Dsge Modeling," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 1-19, June.
    • Handle: RePEc:wsi:afexxx:v:14:y:2019:i:02:n:s2010495219500076
    DOI: 10.1142/S2010495219500076
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    Cited by:

    1. Tarek Ghazouani, 2020. "Energy Price Shocks and Financial Market Integration: Evidence from New Keynesian Model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(1), pages 13-32, February.
    2. Ma, Yong & Jiang, Yiqing & Yao, Chi, 2022. "Trade openness, financial openness, and macroeconomic volatility," Economic Systems, Elsevier, vol. 46(1).
    3. Ghazouani, Tarek, 2022. "Dynamic impact of globalization on renewable energy consumption: Non-parametric modelling evidence," Technological Forecasting and Social Change, Elsevier, vol. 185(C).

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