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The two-sided effect of financial globalization on output volatility

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  • Barbara Meller

Abstract

This paper provides evidence for a significant relation between international financial markets integration and output volatility. In the framework of a threshold model, it is empirically shown that this relation depends on the financial risk of a country as perceived by investors. In order to proxy financial risk, a financial risk rating employed by multinational firms, banks, and equity and currency traders is used. This rating relies on debt to GDP ratios amongst other indicators. In countries with low financial risk, financial openness decreases output volatility while financial openness increases output volatility in countries with high financial risk. Extensive robustness checks confirm this result. Copyright Kiel Institute 2013

Suggested Citation

  • Barbara Meller, 2013. "The two-sided effect of financial globalization on output volatility," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(3), pages 477-504, September.
    • Handle: RePEc:spr:weltar:v:149:y:2013:i:3:p:477-504
    DOI: 10.1007/s10290-013-0156-3
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    2. Lin Zhu & Jian He, 2024. "China financial stability and asymmetric implications for economic stability," Economic Change and Restructuring, Springer, vol. 57(1), pages 1-29, February.

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    More about this item

    Keywords

    Output volatility; Financial openness; Financial risk; E32; F36; F41;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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