Financial Globalization: Risk Sharing or Risk Exposure?

Enrique Mendoza and Vincenzo Quadrini

No 34689, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how the increased cross-country ownership of financial assets between advanced and emerging economies impacted their financial and macroeconomic volatility. While cross-country ownership improved risk-sharing and reduced volatility associated with financial crises, it also increased the exposure of countries to foreign crises, leading to higher international co-movement. Through quantitative applications of a two-region model representative of advanced and emerging economies, we find that financial globalization reduced volatility worldwide, but significantly more in emerging economies.

JEL-codes: F40 F41 G01 (search for similar items in EconPapers)
Date: 2026-01
Note: EFG IFM
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