International Financial Integration and National Price Levels: The Role of the Exchange Rate Regime

Mathias Hoffmann () and Peter Tillmann

No 201133, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: How does international .financial integration affect national price levels? Panel evidence for 54 industrialized and emerging countries shows that a larger ratio of foreign assets and liabilities to GDP, our measure of international .financial integration, increases the national price level under .fixed and intermediate exchange rate regimes and lowers the price level under .floating exchange rates. This paper formulates a two-country open economy sticky-price model under either segmented or complete asset markets that is able to replicate these stylized facts. It is shown that the effect of financial integration, i.e. moving from segmented to complete asset markets, is regime-dependent. Under managed exchange rates financial integration raises the national price level. Under .floating exchange rates, however financial integration lowers national price levels. Thus, the paper proposes a novel argument to rationalize systematic deviations from PPP.

Keywords: international financial integration; exchange rate regime; national price level; PPP; foreign asset position (search for similar items in EconPapers)
JEL-codes: F21 F36 F41 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Forthcoming in

Downloads: (external link)
https://www.uni-marburg.de/en/fb02/research-groups ... 33-2011_tillmann.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: International financial integration and national price levels: The role of the exchange rate regime (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201133

Access Statistics for this paper

More papers in MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) Contact information at EDIRC.
Bibliographic data for series maintained by Bernd Hayo ().