North-South financial integration and business cycles
Michael Kouparitsas ()
No WP-96-10, Working Paper Series, Macroeconomic Issues from Federal Reserve Bank of Chicago
This paper examines the business cycle implications of increased North-South trade in financial assets. We build a quantitative general equilibrium model of North-South trade and compare the model's predictions under two asset market assumptions: a restricted setting in which asset trade is limited to a non-contingent one-period bond market; and a highly integrated setting in which agents have access to a complete contingent-claims market. Simulations of the North-South model suggest that increased North-South trade in asset markets (a) lowers Southern consumption and output volatility, and (b) weakens North-South output and consumption correlations, at business cycle frequencies.
Keywords: Business cycles; International trade (search for similar items in EconPapers)
Date: 1996, Revised 1996
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