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The two-sided effect of financial globalization on output volatility


  • Meller, Barbara


This paper provides evidence for a significant relation between international financial markets' integration and output volatility. In the framework of a threshold model, it is shown empirically that this relation depends on country's financial risk. Financial risk indicates a country's ability to pay its official, commercial and trade debts. In countries with low financial risk, financial openness decreases output volatility, while, in countries with high financial risk, financial openness increases output volatility. Extensive robustness checks confirm this result.

Suggested Citation

  • Meller, Barbara, 2011. "The two-sided effect of financial globalization on output volatility," Discussion Paper Series 2: Banking and Financial Studies 2011,07, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp2:201107

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    References listed on IDEAS

    1. Enrica Detragiache & Asli Demirgüç-Kunt, 1998. "Financial Liberalization and Financial Fragility," IMF Working Papers 98/83, International Monetary Fund.
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    More about this item


    output volatility; financial openness; financial risk;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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