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World betas, consumption growth, and financial integration

  • Larrain, Borja
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    We define a country's beta as the covariance of domestic consumption growth with world consumption growth scaled by the world's variance. Beta is related to a country's risk-taking position in models of international financial integration. Empirically, we find that an increase in beta leads to an increase in average consumption growth. This beta-growth relationship is present only among countries with high levels of financial openness, and is absent among the rest. However, we cannot fully discard the presence of non-financial factors (e.g., trade openness) as determinants of the beta-growth relationship.

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    Article provided by Elsevier in its journal Journal of International Money and Finance.

    Volume (Year): 30 (2011)
    Issue (Month): 6 (October)
    Pages: 999-1018

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    Handle: RePEc:eee:jimfin:v:30:y:2011:i:6:p:999-1018
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