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Financial Integration and the Wealth Effect of Exchange Rate Fluctuations

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  • Cedric Tille

    () (International Research Function Federal Reserve Bank of New York)

Abstract

Recent years have witnessed a large increase in international financial integration in the form of largely offsetting cross-holdings across countries. We assess how such financial leverage affects the international transmission of monetary shocks, and find that it leads to sizable welfare differentials that far exceed the impact due to nominal rigidities. We document the relevance of the exact nature of holdings, with bond holdings associated with larger effects than equity holdings. The impact of financial leverage on welfare is also sensitive to the extent of exchange rate pass-through and the substitutability between goods produced in different countries.
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Suggested Citation

  • Cedric Tille, 2005. "Financial Integration and the Wealth Effect of Exchange Rate Fluctuations," 2005 Meeting Papers 282, Society for Economic Dynamics.
  • Handle: RePEc:red:sed005:282
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign assets; valuation effect; exchange rate;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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