Gradual financial integration and macroeconomic fluctuations in emerging market economies: evidence from China

Yong Ma () and Yiqing Jiang
Additional contact information
Yong Ma: Renmin University of China
Yiqing Jiang: Renmin University of China

Journal of Economic Interaction and Coordination, 2023, vol. 18, issue 2, No 4, 275-310

Abstract: Abstract This paper extends the conventional DSGE literature by developing a New Keynesian DSGE model featuring imperfect financial markets with various friction costs, which allows for the study of macroeconomic dynamics under different levels of financial integration. We conduct Bayesian estimation and draw implications on the macroeconomic effects of gradual financial integration using the Chinese economy as an example. We find that macroeconomic fluctuations vary with different levels of financial integration and the specific relationship depends on the nature of exogenous shocks. Variance decomposition analysis shows that as financial integration increases, the contribution of foreign exchange shocks declines while that of domestic shocks increases. We also find that there is a notable enhancement of welfare associated with improvement in financial integration, and the effectiveness of monetary policy in emerging market economies would be weakened as financial integration increases.

Keywords: Financial integration; Emerging market; Macroeconomic fluctuations (search for similar items in EconPapers)
JEL-codes: E32 E52 F36 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11403-022-00368-3 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jeicoo:v:18:y:2023:i:2:d:10.1007_s11403-022-00368-3

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/11403/PS2

DOI: 10.1007/s11403-022-00368-3

Access Statistics for this article

Journal of Economic Interaction and Coordination is currently edited by A. Namatame, Thomas Lux and Shu-Heng Chen

More articles in Journal of Economic Interaction and Coordination from Springer, Society for Economic Science with Heterogeneous Interacting Agents Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().