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Capital Markets Integration, Volatility and Persistence

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  • Joshua Aizenman

Abstract

This paper shows that volatility induces adverse first order welfare effects in countries excluded from the global capital market. This result is illustrated in a model characterized by gains from a greater division of activities, where shocks are persistent. We show that non-linearities attributed to financial autarky explain the adverse welfare effects of volatility. We identify the parameters determining the magnitude of the loss -- it is proportional to the autocorrelation of shocks, to volatility (as measured by the standard deviation of shocks), and to the degree of product differentiation (as measured by the substitutability among intermediate products).

Suggested Citation

  • Joshua Aizenman, 1995. "Capital Markets Integration, Volatility and Persistence," NBER Working Papers 5241, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5241
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    Cited by:

    1. Ferreira da Silva, Gisele, 2002. "The impact of financial system development on business cycles volatility: cross-country evidence," Journal of Macroeconomics, Elsevier, vol. 24(2), pages 233-253, June.
    2. Caterina Mendicino, 2006. "Credit Market and Macroeconomic Volatility," 2006 Meeting Papers 317, Society for Economic Dynamics.
    3. Patrick Artus, 1998. "Le financement de la croissance par endettement extérieur," Revue Économique, Programme National Persée, vol. 49(1), pages 165-179.
    4. Caterina Mendicino, 2006. "Credit Market and Macroeconomic Volatility," 2006 Meeting Papers 317, Society for Economic Dynamics.
    5. Feeney, JoAnne, 1999. "International risk sharing, learning by doing, and growth," Journal of Development Economics, Elsevier, vol. 58(2), pages 297-318, April.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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