The Real Effects of Financial Integration

Imbs, Jean M.

doi:10.2139/ssrn.506363

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The Real Effects of Financial Integration

48 Pages Posted: 26 Feb 2004

See all articles by Jean M. Imbs

Jean M. Imbs

Paris School of Economics (PSE); NYU Abu Dhabi; Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written: February 2004

Abstract

Fluctuations in GDP are more synchronized internationally than fluctuations in Consumption, and they remain so even between financially integrated economies, where the ranking should in theory be the reverse. This paper shows this happens because correlations in GDP fluctuations rise with financial integration. Finance serves to increase international correlations in both consumption and GDP fluctuations, which explains the persistent gap between the two in the data. The positive association between financial integration and GDP correlation constitutes a puzzle, as theory suggests a negative relation if anything. Nevertheless, it prevails in the data even after the effects of finance on trade and specialization are accounted for.

Keywords: Financial Integration, International Business Cycles, Risk Sharing, Quantity Puzzle

JEL Classification: F30, F41, E44

Suggested Citation: Suggested Citation

Imbs, Jean M. and Imbs, Jean M., The Real Effects of Financial Integration (February 2004). Available at SSRN: https://ssrn.com/abstract=506363 or http://dx.doi.org/10.2139/ssrn.506363