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Finance and synchronization

Ambrogio Cesa-Bianchi ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In the workhorse model of international real business cycles, financial integration exacerbates the cycle asymmetry created by country-specific supply shocks. The prediction is identical in response to purely common shocks in the same model augmented with simple country heterogeneity (e.g., where depreciation rates or factor shares are different across countries). This happens because common shocks have heterogeneous consequences on the marginal products of capital across countries, which triggers international investment. In the data, filtering out common shocks requires therefore allowing for country-specific loadings. We show that finance and synchronization correlate negatively in response to such common shocks, consistent with previous findings. But fi- nance and synchronization correlate non-negatively, almost always positively, in response to purely country-specific shocks.

Keywords: Stochastic Discount Factor; Vector Autoregression; Shocks; Technology News; Monetary Policy; Cross-section; Stock Returns; Bond Returns (search for similar items in EconPapers)
JEL-codes: E32 F15 F36 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
Date: 2016-04-03
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http://eprints.lse.ac.uk/86226/ Open access version. (application/pdf)

Related works:
Working Paper: Finance and Synchronization (2016) Downloads
Working Paper: Finance and Synchronization (2016) Downloads
Working Paper: Finance and Synchronization (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86226

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