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International financial remoteness and macroeconomic volatility

  • Andrew K. Rose
  • Mark M. Spiegel

This paper shows that proximity to major international financial centers seems to reduce business cycle volatility. In particular, we show that countries that are further from major locations of international financial activity systematically experience more volatile growth rates in both output and consumption, even after accounting for domestic financial depth, political institutions, and other controls. Our results are relatively robust in the sense that more financially remote countries are more volatile, though the results are not always statistically significant. The comparative strength of this finding is in contrast to the more ambiguous evidence found in the literature.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2008-01.

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Date of creation: 2007
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Handle: RePEc:fip:fedfwp:2008-01
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  1. Martin, Philippe & Rey, Helene, 2004. "Financial super-markets: size matters for asset trade," Journal of International Economics, Elsevier, vol. 64(2), pages 335-361, December.
  2. Andrew K. Rose & Mark M. Spiegel, 2005. "Offshore financial centers: parasites or symbionts?," Working Paper Series 2005-05, Federal Reserve Bank of San Francisco.
  3. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Department of Economics, Working Paper Series qt5pv1j341, Department of Economics, UC Santa Cruz.
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  15. Kraay, Aart & Ventura, Jaume, 1998. "Comparative advantage and the cross-section of business cycles," Policy Research Working Paper Series 1948, The World Bank.
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  25. repec:rus:hseeco:72137 is not listed on IDEAS
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  34. Assaf Razin & Andrew Rose, 1992. "Business Cycle Volatility and Openness: An Exploratory Cross-Section Analysis," NBER Working Papers 4208, National Bureau of Economic Research, Inc.
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