The Real Effects of Financial Integration

34 Pages Posted: 17 Aug 2005

See all articles by Jean M. Imbs

Jean M. Imbs

Paris School of Economics (PSE); NYU Abu Dhabi; Centre for Economic Policy Research (CEPR)

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Abstract

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.

Keywords: Financial Integration, International Business Cycles, Risk Sharing, Quantity Puzzle

JEL Classification: F30, F41, E44

Suggested Citation

Imbs, Jean M. and Imbs, Jean M., The Real Effects of Financial Integration. Journal of International Economics, 2005, Available at SSRN: https://ssrn.com/abstract=781444

Jean M. Imbs (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

NYU Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom