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

57 Pages Posted: 4 Dec 2020 Last revised: 7 Dec 2020

See all articles by Martin Richard Goetz

Martin Richard Goetz

Goethe University Frankfurt

Juan Carlos Gozzi

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: November, 2020

Abstract

We analyze the effect of the geographic expansion of banks across U.S. states on the comovement 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.

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 (November, 2020). Available at SSRN: https://ssrn.com/abstract=3742689 or http://dx.doi.org/10.17016/IFDP.2020.1305

Martin Richard Goetz (Contact Author)

Goethe University Frankfurt ( email )

Theodor W Adorno Platz 4
Frankfurt, 60323
Germany

Juan Carlos Gozzi

Board of Governors of the Federal Reserve System ( 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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