Capital Markets Integration, Volatility and Persistence

22 Pages Posted: 20 Jul 2000 Last revised: 29 Oct 2022

See all articles by Joshua Aizenman

Joshua Aizenman

University of Southern California - Department of Economics

Date Written: August 1995

Abstract

This paper shows that volatility induces adverse first order welfare effects in countries excluded from the global capital market. This result is illustrated in a model characterized by gains from a greater division of activities, where shocks are persistent. We show that non-linearities attributed to financial autarky explain the adverse welfare effects of volatility. We identify the parameters determining the magnitude of the loss -- it is proportional to the autocorrelation of shocks, to volatility (as measured by the standard deviation of shocks), and to the degree of product differentiation (as measured by the substitutability among intermediate products).

Suggested Citation

Aizenman, Joshua, Capital Markets Integration, Volatility and Persistence (August 1995). NBER Working Paper No. w5241, Available at SSRN: https://ssrn.com/abstract=225305

Joshua Aizenman (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

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