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Financial Integration and the Wealth Effect of Exchange Rate Fluctuations

  • Cedric Tille

    ()

    (International Research Function Federal Reserve Bank of New York)

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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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 282.

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Date of creation: 2005
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Handle: RePEc:red:sed005:282
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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