Is the Integration of World Asset Markets Necessarily Beneficial in the Presence of Monetary Shocks?

54 Pages Posted: 16 Aug 2006

See all articles by Cédric Tille

Cédric Tille

Graduate Institute of International and Development Studies (HEI)

Date Written: November 2000

Abstract

This paper evaluates the consequences of the integration of international asset markets when goods markets are characterized by price rigidities. Using an open economy general equilibrium model with volatility in the money markets, we show that such an integration is not universally beneficial. The country with the more volatile shocks will benefit whereas the country where the volatility of shocks is moderate will suffer. The welfare effects reflect changes in the terms of trade that occur because forward looking price setters adjust to the changes in exchange rate volatility brought about by the integration of international asset markets.

Keywords: international risk sharing, terms of trade

JEL Classification: F33, F36, F41, F42

Suggested Citation

Tille, Cedric, Is the Integration of World Asset Markets Necessarily Beneficial in the Presence of Monetary Shocks? (November 2000). FRB of New York Staff Report No. 114. Available at SSRN: https://ssrn.com/abstract=924193 or http://dx.doi.org/10.2139/ssrn.924193

Cedric Tille (Contact Author)

Graduate Institute of International and Development Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

HOME PAGE: http://sites.google.com/site/cedrictilleheid/home

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