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Consumption Volatility and Financial Openness

  • Claudia M. Buch
  • Serkan Yener

Economic theory predicts that the integration of financial markets lowers the volatility of consumption. In this paper, we study long-term trends in the consumption volatility of the G7 countries. Using different measures of financial openness, we find that greater financial openness has been associated with lower consumption volatility in Canada and Italy. In France, Germany, Japan, and the UK, consumption volatility has declined following equity market liberalization but not following capital account liberalization as such.

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File URL: https://www.ifw-members.ifw-kiel.de/publications/consumption-volatility-and-financial-openness/kap1260.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1260.

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Length: 32 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:kie:kieliw:1260
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  1. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
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  8. Kaminsky, Graciela Laura & Schmukler, Sergio L., 2002. "Short-run pain, long-run gain : the effects of financial liberalization," Policy Research Working Paper Series 2912, The World Bank.
  9. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-53, December.
  10. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Growth Volatility and Financial Liberalization," NBER Working Papers 10560, National Bureau of Economic Research, Inc.
  11. Susanto Basu & Alan M. Taylor, 1999. "Business Cycles in International Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 45-68, Spring.
  12. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
  13. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  14. Sutherland, Alan, 1996. " Financial Market Integration and Macroeconomic Volatility," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 521-39, December.
  15. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
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