The Real Effects of Financial (Dis)Integration: A Multi-Country Equilibrium Analysis of Europe

53 Pages Posted: 9 Mar 2016 Last revised: 25 Oct 2016

See all articles by Indraneel Chakraborty

Indraneel Chakraborty

University of Miami

Rong Hai

University of Miami - School of Business Administration - Department of Economics

Hans Aasnes Holter

University of Oslo - Department of Economics

Serhiy Stepanchuk

Ecole Polytechnique Fédérale de Lausanne

Date Written: October 24, 2016

Abstract

Using data from 15 European Union economies, we quantify the real effects of supply-side frictions due to the financial disintegration of European countries since the 2008 financial crisis. We develop a multi-country general equilibrium model with heterogeneous countries and destination-specific financial frictions. Financial institutions allocate capital endogenously across countries, determining the cost of capital to firms and the wealth of nations. The cost of financial disintegration is reduced access to capital for firms which results in lower output. Financial disintegration leads to a 0.54% fall in output in Europe since the crisis. We also estimate benefits of further financial integration.

Keywords: Financial Integration, Global Financial Crisis, Europe, Financial Institutions, Cross-border Financing

JEL Classification: E52, E61, F45, F62, F34, G10, G11, G12, G15, G21

Suggested Citation

Chakraborty, Indraneel and Hai, Rong and Holter, Hans Aasnes and Stepanchuk, Serhiy, The Real Effects of Financial (Dis)Integration: A Multi-Country Equilibrium Analysis of Europe (October 24, 2016). Journal of Monetary Economics, Forthcoming; Carnegie-Rochester Conference Series on Public Policy, April 2016 . Available at SSRN: https://ssrn.com/abstract=2743909 or http://dx.doi.org/10.2139/ssrn.2743909

Indraneel Chakraborty (Contact Author)

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)

HOME PAGE: http://sites.google.com/site/chakraborty/

Rong Hai

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

HOME PAGE: http://https://sites.google.com/site/ronghaiecon/

Hans Aasnes Holter

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47-22855108 (Phone)

HOME PAGE: http://sites.google.com/site/hansaholter/

Serhiy Stepanchuk

Ecole Polytechnique Fédérale de Lausanne ( email )

Station 5
Odyssea 1.04
1015 Lausanne, CH-1015
Switzerland

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