International business cycles and financial frictions

Wen Yao

Journal of International Economics, 2019, vol. 118, issue C, 283-291

Abstract: In this study, I build a two-country DSGE model to investigate the impact of financial integration on business cycle co-movements with financial frictions. In this model, the investor can borrow but faces a collateral constraint that is tied to the value of her capital and real estate holdings. I show quantitatively that the degree of financial integration and real exchange rate adjustment are important for understanding business cycle synchronization under different types of shocks. With the technology shock, greater financial integration leads to lower cross-country correlations, while with the financial shock, greater financial integration leads to stronger cross-country correlations. These findings are consistent with the empirical evidence from the literature.

Keywords: Financial frictions; Business cycle co-movement; Financial integration (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: International Business Cycles and Financial Frictions (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:118:y:2019:i:c:p:283-291

DOI: 10.1016/j.jinteco.2019.03.002

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