Financial Regulation, Financial Globalization and the Synchronization of Economic Activity

47 Pages Posted: 19 Jul 2010

See all articles by Sebnem Kalemli-Ozcan

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Koc University, Graduate School of Business

Elias Papaioannou

Dartmouth College - Department of Economics

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: June 24, 2010

Abstract

We identify the effect of financial integration on international business cycle synchronization, by utilizing a confidential database on banks’ bilateral exposure and employing a country-pair panel instrumental variables approach. Countries that become more integrated over time have less synchronized growth patterns, conditional on global shocks and country-pair factors. To account for reverse causality and measurement error, we exploit variation in the transposition dates of financial legislation. We find that increases in financial integration stemming from regulatory harmonization policies are followed by more divergent cycles. Our results contrast with those of the previous studies which suffer from the standard identification problems.

Keywords: Banking Integration, Co-movement, Fluctuations, Financial Legislation

JEL Classification: E32, F15, F36, G21, G28, O16

Suggested Citation

Kalemli-Ozcan, Sebnem and Papaioannou, Elias and Peydro, Jose-Luis, Financial Regulation, Financial Globalization and the Synchronization of Economic Activity (June 24, 2010). ECB Working Paper No. 1221, Available at SSRN: https://ssrn.com/abstract=1629822 or http://dx.doi.org/10.2139/ssrn.1629822

Sebnem Kalemli-Ozcan (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Koc University, Graduate School of Business ( email )

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Turkey

Elias Papaioannou

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
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London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

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Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

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

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