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The Effects of Goods and Financial Market Integration on Macroeconomic Volatility

Ozge Senay ()

The Manchester School of Economic & Social Studies, 1998, vol. 66, issue 0, 39-61

Abstract: This paper aims to determine whether increasing goods and financial market integration raises or lowers macroeconomic volatility. The effects of shocks to the money supply, government expenditure, and labor supply on the volatility of macroeconomic variables are analyzed under different degrees of goods and financial market integration in a dynamic general equilibrium framework. Imperfect goods market integration is represented by pricing-to-market behavior by firms and imperfect financial market integration by adjustment costs to foreign asset stock changes. Simulations show that the effects of the different shocks on economic volatility change significantly depending on the presence of incompletely integrated goods and/or financial markets. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1998
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Handle: RePEc:bla:manch2:v:66:y:1998:i:0:p:39-61