International Financial Integration and the Real Economy
What are the consequences of financial integration for the real economy? This paper develops a set of theoretical benchmarks for the link between integration and macroeconomic volatility and welfare. The analysis is conducted in a standard two-sector international real business cycle model in which we introduce dynamic portfolio choice over equities and an international bond. The model predicts an increase in the volatility of output in response to integration, whereas the relationship between integration and consumption volatility is hump-shaped. We also find that financial integration is associated with significant improvement in risk-sharing across countries, although in aggregate the welfare benefits are very small. At the same time, the level of financial integration significantly affects how the welfare benefits of productivity shocks are distributed internationally. IMF Staff Papers (2007) 54, 220–269. doi:10.1057/palgrave.imfsp.9450011
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 54 (2007)
Issue (Month): 2 (June)
|Contact details of provider:|| Web page: http://www.palgrave-journals.com/|
|Order Information:||Web: http://www.springer.com/economics/journal/41308/PS2|