Financial Integration and Macroeconomic Volatility

Author/Editor:

Marco Terrones ; Eswar S Prasad ; Ayhan Kose

Publication Date:

March 1, 2003

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 03/50

Subject:

English

Publication Date:

March 1, 2003

ISBN/ISSN:

9781451846997/1018-5941

Stock No:

WPIEA0502003

Format:

Paper

Pages:

28

Please address any questions about this title to publications@imf.org