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Financial Integration and Macroeconomic Volatility
Author:
Mr. Marco Terrones
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Mr. Eswar S Prasad
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Mr. Ayhan Kose
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Series:
IMF Working Papers
Volume/Issue:
Volume 2003: Issue 050
Language:
English
Publication Date:
01 Mar 2003
DOI:
https://doi.org/10.5089/9781451846997.001
ISBN:
9781451846997
ISSN:
1018-5941
Pages:
28
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund