Financial Integration and the Co-Movement of Economic Activity: Evidence from U.S. States

78 Pages Posted: 4 Dec 2013 Last revised: 6 Jun 2019

See all articles by Martin Richard Goetz

Martin Richard Goetz

Goethe University Frankfurt - Research Center SAFE

Juan Carlos Gozzi

Board of Governors of the Federal Reserve

Date Written: June 3, 2019

Abstract

We analyze the effect of the geographic expansion of banks across U.S. states on the co-movement of economic activity between states. Exploiting the removal of interstate banking restrictions to construct time-varying instrumental variables at the state-pair level, we find that bilateral banking integration increases output co-movement between states. The effect of financial integration depends on the nature of the idiosyncratic shocks faced by states and is stronger for more financially dependent industries. Finally, we show that integration (1) increases the similarity of bank lending fluctuations between states and (2) contributes to the transmission of deposit shocks across states.

Keywords: banking integration; synchronization; financial deregulation; business cycles

JEL Classification: E32, F36, F44, G21

Suggested Citation

Goetz, Martin Richard and Gozzi, Juan Carlos, Financial Integration and the Co-Movement of Economic Activity: Evidence from U.S. States (June 3, 2019). Available at SSRN: https://ssrn.com/abstract=2362274 or http://dx.doi.org/10.2139/ssrn.2362274

Martin Richard Goetz

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Juan Carlos Gozzi (Contact Author)

Board of Governors of the Federal Reserve ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/econresdata/juan-carlos-gozzi.htm

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