The Real Effects of Financial Integration

Jean Imbs (1, 2)

1 Center for Economic Research
2 HEC Lausanne - Faculté des Hautes Etudes Commerciales (HEC Lausanne)

This paper shows 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, a quantity puzzle. 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.

Mots clés: Financial Integration; International Business Cycles; Risk Sharing; Quantity Puzzle

Domaines: Economies et finances

Jean Imbs. The Real Effects of Financial Integration. Journal of International Economics, 2006, 68 (2), pp.296-324. ⟨10.1016/j.jinteco.2005.05.003⟩. ⟨hal-00612566⟩