Globalisation and Macroeconomic Volatility
Neil Dias Karunaratne
University of Queensland - School of Economics
June 26, 2012
INFORMATION AND ORGANISATION, S. Macdonald, J. Nightingale, eds., North-Holland, 1999
The paper analyses the forces that have integrated the Australian economy with the global financial markets. Besides, financial deregulation and the reduction of protectionist trade barriers, the widespread application of the revolutionary changes in information and communication technology has reconfigured the openess of the Australian economy and increased its vulnerability to exogenous shocks, thereby increasing macroeconomic volatility. The paper compares the increase in exchange rate volatility in the post-float (1983Q4) and pre-float periods using measures measures such as standard deviation and Schwert index of volatility, ARCH and GARCH criteria. Some of the controversies relating to financial globalization are reviewed and a comprehensive measure of capital mobility in terms of the Real Interest Parity criterion based on the Feldstein-Horioka measure are calculated. The paper using cointegration techniques demonstrates that a radical transformation of the policy transmission mechanism has occurred due to the adoption of the inflation targeting framework. The case for a regulatory framework or 'throwing sand on the wheels of international finance is reviewed. Issues relating to the reconfiguration of the financial regulatory framework to meet the challenges of the emerging borderless financial world are also examined.
Number of Pages in PDF File: 23
Keywords: financial globalisation, changes in information and communication technology, measures of exchange rate volatility, Schwert Index, ARCH and GARCH measures, Feldsetin-Horiorka criterion, real interest parity, inflation targeting, regulatory framework for a borderless world
JEL Classification: F31, F41, G14Accepted Paper Series
Date posted: June 27, 2012
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