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Business Cycle Fluctuations and International Financial Integration

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  • Kizys, Renatas
  • Pierdzioch, Christian

Abstract

Theoretical research on the determinants of business-cycle fluctuations implies that the degree of international financial integration can have important implications for the propagation of, e.g., macroeconomic policy shocks in an open economy. An important assumption underlying this research is that the degree of financial integration can be taken as exogenously given. Because recent empirical research has demonstrated that financial integration may change over time, we use data for the G7 countries to test how well this assumption fits to the data. We find that one can maintain, as a rule, the assumption that the degree of financial integration is invariant to the determinants of the business-cycle fluctuations. We find, however, a few exceptions from this rule, and we also find that shocks tend to have a highly persistent effect on financial integration.

Suggested Citation

  • Kizys, Renatas & Pierdzioch, Christian, 2004. "Business Cycle Fluctuations and International Financial Integration," Kiel Working Papers 1197, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwkwp:1197
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    More about this item

    Keywords

    Open economy macroeconomics; Business cycles; Financial integration;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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