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Is the integration of world asset markets necessarily beneficial in the presence of monetary shocks?

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  • Cedric Tille

Abstract

This paper evaluates the consequences of the integration of international asset markets when goods markets are characterized by price rigidities. Using an open economy general equilibrium model with volatility in the money markets, we show that such an integration is not universally beneficial. The country with the more volatile shocks will benefit whereas the country where the volatility of shocks is moderate will suffer. The welfare effects reflect changes in the terms of trade that occur because forward looking price setters adjust to the changes in exchange rate volatility brought about by the integration of international asset markets.

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File URL: http://www.newyorkfed.org/research/staff_reports/sr114.html
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File URL: http://www.newyorkfed.org/research/staff_reports/sr114.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 114.

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Date of creation: 2000
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Handle: RePEc:fip:fednsr:114

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Related research

Keywords: Asset pricing ; Business cycles ; Monetary policy ; Financial markets;

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Cited by:
  1. Alexander Mihailov, 2003. "When and How Much Does a Peg Increase Trade? The Role of Trade Costs and Import Demand Elasticity under Monetary Uncertainty," Economics Discussion Papers 567, University of Essex, Department of Economics.
  2. Lane, P.R. & Ganelli, G., 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," CEG Working Papers 20026, Trinity College Dublin, Department of Economics.
  3. Fabio Ghironi, 2000. "Macroeconomic Interdependence under Incomplete Markets," Boston College Working Papers in Economics 471, Boston College Department of Economics, revised 07 Feb 2003.

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