We present a new empirical strategy for testing if financial integration improves risk sharing opportunities and consumption smoothing. Our test is based on a decomposition of the variance of consumption growth into a component that depends on the variance of permanent income shocks and one that depends on the variance of transitory shocks. We then test if the process of financial market integr...

This paper constructs a two-country overlapping generations model with two distinct fiat monies in which seigniorage revenues are used to finance a local public good. Countries differ both in endowments and in the preference for the public good. Under perfect mobility of financial assets benevolent governments choose their rates of growth of money supply strategically and private individuals ha...

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We explore the relation between international financial integration and the level of entrepreneurial activity in a country. Researchers have stressed the role of new firm activity and economic dynamism on growth. Yet, the empirical effects of international capital mobility on entrepreneurial activity have received little attention in the literature albeit the ambiguous theoretical predictions a...

Lane and Milesi-Ferretti gather data on assets and liabilities of 18 OECD countries. The data are classified by type of asset–debt instruments and equity instruments (either portfolio or foreign direct investment). To some extent the data allow them to classify changes in asset and liability positions that occur because of capital flows versus changes in valuation. With this data, Lane and Mile...

How does international financial integration affect national price levels? To analyze this question, this paper formulates a two-country open economy stickyprice model under either segmented or complete asset markets. It is shown that the effect of financial integration, i.e. moving from segmented to complete asset markets, is regime-dependent. Under managed exchange rates, financial integratio...

This paper studies the effects of financial integration on economic growth using an international panel data of 83 countries from 1974-2007. The effects of financial integration on economic growth differ considerably, depending on the type of external assets and liabilities as well as on the characteristics of countries that experience financial integration. In particular, when we break down ex...