The Real Effects of Financial Integration
Jean M. Imbs
Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR); Swiss Finance Institute
Journal of International Economics, 2005
This paper shows correlations in GDP fluctuations rise with financial integration. Finance serves to increase international correlations in both consumption and GDP fluctuations, which explains the persistent gap between the two in the data, a quantity puzzle. The positive association between financial integration and GDP correlation constitutes a puzzle, as theory suggests a negative relation if anything. Nevertheless, it prevails in the data even after the effects of finance on trade and specialization are accounted for.
Number of Pages in PDF File: 34
Keywords: Financial Integration, International Business Cycles, Risk Sharing, Quantity Puzzle
JEL Classification: F30, F41, E44Accepted Paper Series
Date posted: August 17, 2005
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