The Real Effects of Financial Integration
نویسنده
چکیده
Fluctuations in GDP are more synchronized internationally than ßuctuations in Consumption, and they remain so even between Þnancially integrated economies, where the ranking should in theory be the reverse. This paper shows that consumption patterns are more correlated between Þnancially integrated economies. Thus the quantity puzzle must arise from the tendency of Þnancially integrated economies to also display high GDP correlations. The paper shows this to be the case for economies with liberalized capital accounts, and, using a newly published dataset on actual bilateral capital ßows, for economies with Þnancial linkages intensive in long term assets. On the other hand, short term debt ßows are associated with lower GDP correlations, consistent with theory. These results, rather than the lack of risk sharing in the data, are what constitutes the quantity puzzle.
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