IDEAS home Printed from https://ideas.repec.org/p/zbw/uhhwps/281784.html
   My bibliography  Save this paper

Financial integration and international shock transmission: The terms-of-trade effect

Author

Listed:
  • Krenz, Johanna

Abstract

What are the effects of financial integration on global comovement? Using a standard two-country DSGE model, I show that in response to country-specific supply shocks higher exposure to foreign assets leads to lower cross-country output correlations, while the opposite is true for country-specific demand shocks. I argue that an important, yet overlooked, transmission channel originates in the interplay between financial integration and terms of trade movements in response to the shocks hitting the economy. The transmission channel is independent of whether the agents who hold the foreign assets are financially constrained or not.

Suggested Citation

  • Krenz, Johanna, 2023. "Financial integration and international shock transmission: The terms-of-trade effect," WiSo-HH Working Paper Series 80, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    • Handle: RePEc:zbw:uhhwps:281784
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/281784/1/187972717X.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Dedola, Luca & Karadi, Peter & Lombardo, Giovanni, 2013. "Global implications of national unconventional policies," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 66-85.
    2. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Perri, Fabrizio, 2013. "Global banks and crisis transmission," Journal of International Economics, Elsevier, vol. 89(2), pages 495-510.
    3. Davis, J. Scott, 2014. "Financial integration and international business cycle co-movement," Journal of Monetary Economics, Elsevier, vol. 64(C), pages 99-111.
    4. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2003. "The Unholy Trinity of Financial Contagion," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 51-74, Fall.
    5. Heathcote, Jonathan & Perri, Fabrizio, 2004. "Financial globalization and real regionalization," Journal of Economic Theory, Elsevier, vol. 119(1), pages 207-243, November.
    6. Fiorella De Fiore & Oreste Tristani, 2013. "Optimal Monetary Policy in a Model of the Credit Channel," Economic Journal, Royal Economic Society, vol. 123(571), pages 906-931, September.
    7. Luca Dedola & Giovanni Lombardo, 2012. "Financial frictions, financial integration and the international propagation of shocks [Optimal monetary policy under commitment with a zero bound on nominal interest rates]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(70), pages 319-359.
    8. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jae Shim, 2016. "Financial Frictions in the Small Open Economy," Department of Economics Working Papers 50/16, University of Bath, Department of Economics.
    2. Padhan, Rakesh & Prabheesh, K.P., 2020. "Business cycle synchronization: Disentangling direct and indirect effect of financial integration in the Indian context," Economic Modelling, Elsevier, vol. 85(C), pages 272-287.
    3. Davis, J. Scott, 2014. "Financial integration and international business cycle co-movement," Journal of Monetary Economics, Elsevier, vol. 64(C), pages 99-111.
    4. Carattini, Stefano & Kim, Giseong & Melkadze, Givi & Pommeret, Aude, 2024. "Carbon taxes and tariffs, financial frictions, and international spillovers," European Economic Review, Elsevier, vol. 170(C).
    5. Sebnem Kalemli-Ozcan & Elias Papaioannou & José-Luis Peydró, 2013. "Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity," Journal of Finance, American Finance Association, vol. 68(3), pages 1179-1228, June.
    6. McNelis, Paul D., 2016. "Optimal policy rules at home, crisis and quantitative easing abroad," BOFIT Discussion Papers 15/2016, Bank of Finland, Institute for Economies in Transition.
    7. Thibaud Cargoet & Jean-Christophe Poutineau, 2018. "Financial Disruption and State Dependant Credit Policy," Post-Print halshs-01683785, HAL.
    8. Auray, Stéphane & Eyquem, Aurélien & Ma, Xiaofei, 2018. "Banks, sovereign risk and unconventional monetary policies," European Economic Review, Elsevier, vol. 108(C), pages 153-171.
    9. Gregor Boehl & Gavin Goy & Felix Strobel, 2024. "A Structural Investigation of Quantitative Easing," The Review of Economics and Statistics, MIT Press, vol. 106(4), pages 1028-1044, July.
    10. Victoria Nuguer, 2016. "Financial Intermediation in a Global Environment," International Journal of Central Banking, International Journal of Central Banking, vol. 12(3), pages 291-344, September.
    11. Lim, G.C. & McNelis, Paul D., 2018. "Unconventional monetary and fiscal policies in interconnected economies: Do policy rules matter?," Journal of Economic Dynamics and Control, Elsevier, vol. 93(C), pages 346-363.
    12. Sebnem Kalemli-Özcan, 2014. "Spillovers to emerging markets during global financial crisis," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 17(2), pages 26-47, August.
    13. Goetz, Martin R. & Gozzi, Juan Carlos, 2022. "Financial integration and the co-movement of economic activity: Evidence from U.S. states," Journal of International Economics, Elsevier, vol. 135(C).
    14. Banerjee, Ryan & Devereux, Michael B. & Lombardo, Giovanni, 2016. "Self-oriented monetary policy, global financial markets and excess volatility of international capital flows," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 275-297.
    15. Ahmet Aysan & Salih Fendoglu & Mustafa Kilinc, 2014. "Managing short-term capital flows in new central banking: unconventional monetary policy framework in Turkey," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 45-69, June.
    16. Eickmeier, Sandra & Ng, Tim, 2015. "How do US credit supply shocks propagate internationally? A GVAR approach," European Economic Review, Elsevier, vol. 74(C), pages 128-145.
    17. Johnson, Christopher P., 2021. "International shadow banking and prudential capital controls," Journal of International Money and Finance, Elsevier, vol. 119(C).
    18. McNelis, Paul D., 2016. "Optimal policy rules at home, crisis and quantitative easing abroad," BOFIT Discussion Papers 15/2016, Bank of Finland Institute for Emerging Economies (BOFIT).
    19. Michael B. Devereux & Charles Engel & Steve Pak Yeung Wu, 2023. "Collateral Advantage: Exchange Rates, Capital Flows and Global Cycles," NBER Working Papers 31164, National Bureau of Economic Research, Inc.
    20. Luca Guerrieri & Matteo Iacoviello & Raoul Minetti, 2013. "Banks, Sovereign Debt, and the International Transmission of Business Cycles," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 181-213.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:uhhwps:281784. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/fwhamde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.