Financial Integration and Macroeconomic Volatility

29 Pages Posted: 6 Apr 2003

See all articles by Ayhan Kose

Ayhan Kose

affiliation not provided to SSRN

Eswar Prasad

affiliation not provided to SSRN

Marco Terrones

affiliation not provided to SSRN

Date Written: March 2003

Abstract

This paper examines the impact of international financial integration on macroeconomic volatility in a large group of industrial and developing economies over the period 1960-99. We report two major results: First, while the volatility of output growth has, on average, declined in the 1990s relative to the three preceding decades, we also document that, on average, the volatility of consumption growth relative to that of income growth has increased for more financially integrated developing economies in the 1990s. Second, increasing financial openness is associated with rising relative volatility of consumption, but only up to a certain threshold. The benefits of financial integration in terms of improved risk-sharing and consumption-smoothing possibilities appear to accrue only beyond this threshold.

Keywords: WP, consumption volatility, economy, Financial Globalization, Macroeconomic Fluctuations, Income and Consumption Volatility, International Risk Sharing, income volatility, terms of trade shock, consumption-smoothing opportunity, terms of trade volatility, growth volatility, Consumption, Financial integration, Income, Capital flows, Terms of trade, Global

JEL Classification: F41, F42, F36, E21, G10, E25, F21, F14

Suggested Citation

Kose, Ayhan and Prasad, Eswar and Terrones, Marco, Financial Integration and Macroeconomic Volatility (March 2003). Available at SSRN: https://ssrn.com/abstract=3923430 or http://dx.doi.org/10.2139/ssrn.3923430

Ayhan Kose (Contact Author)

affiliation not provided to SSRN

No Address Available

Eswar Prasad

affiliation not provided to SSRN

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Marco Terrones

affiliation not provided to SSRN

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