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Domestic and International Finance: How Do They Affect Consumption Smoothing?

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  • Huizinga, Harry
  • Zhu, Dantao

Abstract

This Paper uses empirical proxies for the domestic development and international integration of debt and equity markets to assess the role of financial development in international consumption smoothing. First, we find that both domestic and international finance contribute to international consumption smoothing. Second, domestic debt market development is relatively important in explaining consumption smoothing relative to GNP among developed countries, while international debt market integration appears to be the limiting factor in developing countries. Third, both debt and equity market development contribute to the smoothing of consumption relative to GDP, with a somewhat larger role for the former than the latter. Finally, debt and equity market development reveal themselves to be substitutes in that more of one reduces the contribution of the other to consumption smoothing.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4677.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4677

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Keywords: consumption smoothing; financial development;

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Cited by:
  1. Aidan Corcoran, 2008. "International Financial Integration and Consumption Risk Sharing," The Institute for International Integration Studies Discussion Paper Series iiisdp241, IIIS.
  2. Rose, Andrew K & Spiegel, Mark, 2007. "International Financial Remoteness and Macroeconomic Volatility," CEPR Discussion Papers 6301, C.E.P.R. Discussion Papers.
  3. Atanas Christev & Jacques Melitz, 2013. "EMU, EU, Market Integration and Consumption Smoothing," Open Economies Review, Springer, vol. 24(5), pages 789-818, November.
  4. Christev, Atanas & MĂ©litz, Jacques, 2010. "EMU, EU, capital market integration and consumption smoothing," CEPR Discussion Papers 7776, C.E.P.R. Discussion Papers.

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