Capital and Credit Market Integration and Real Economic Contagion During the Global Financial Crisis

42 Pages Posted: 14 Mar 2014 Last revised: 27 Apr 2016

See all articles by Ju Hyun Pyun

Ju Hyun Pyun

Korea University Business School (KUBS)

Jiyoun An

Kyung Hee University

Date Written: January 18, 2016

Abstract

This study investigates the role of financial integration in the spread of the global financial crisis. In particular, this study shows how the effect of the crisis on real business cycle co-movement varied for capital and credit market integration, using a sample of 58 countries in 2001–2013. During the global financial crisis, the United States — the epicenter of the crisis — experienced a severe downturn in the real economy, and other countries followed suit. We find that during the global financial crisis, the business cycle co-movements between the United States and the rest of the world were stronger when the level of capital market integration between them was higher. However, the co-movements were weaker when the level of credit market integration was higher. These findings are robust even when including investment channels, local fundamental factors, endogenous policy responses across countries, and alternative measures for financial integration and business cycle co-movements.

Keywords: Capital market integration; Credit market integration; Global financial crisis; Real business cycle co-movements

JEL Classification: E32, F15, F36

Suggested Citation

Pyun, Ju Hyun and An, Jiyoun, Capital and Credit Market Integration and Real Economic Contagion During the Global Financial Crisis (January 18, 2016). Available at SSRN: https://ssrn.com/abstract=2408942 or http://dx.doi.org/10.2139/ssrn.2408942

Ju Hyun Pyun (Contact Author)

Korea University Business School (KUBS) ( email )

145 Anam-Ro, Seongbuk-Gu
Seoul, 02841
Korea, Republic of (South Korea)
82-2-3290-2610 (Phone)

HOME PAGE: http://sites.google.com/site/juhyunpyun/research

Jiyoun An

Kyung Hee University ( email )

1732 Deogyeong-daero
Giheung-gu
Yongin-si, Gyeonggi-do, Gyeonggi-Do 446-701
Korea, Republic of (South Korea)

HOME PAGE: http://kic.khu.ac.kr/

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