Financial Integration, Liquidity and the Depth of Systemic Crises

Guido Lorenzoni (), Fabio Feriozzi and Fabio Castiglionesi
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Fabio Castiglionesi: Tilburg University

No 440, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: and to increase the level of long term investment. In this case, partial integration opens up the opportunity for the occurrence of extreme events. That is, the cost of liquidity can become unusually high and the optimal consumption can display both higher volatility than in autarky and negative skewness. When complete financial integration is not achievable, then extreme events can be the optimal outcome of partial integration.

Date: 2009
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