Financial Integration, Liquidity and the Depth of Systemic Crises
Fabio Feriozzi () and
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Fabio Castiglionesi: Tilburg University
No 440, 2009 Meeting Papers from Society for Economic Dynamics
and to increase the level of long term investment. In this case, partial integration opens up the opportunity for the occurrence of extreme events. That is, the cost of liquidity can become unusually high and the optimal consumption can display both higher volatility than in autarky and negative skewness. When complete financial integration is not achievable, then extreme events can be the optimal outcome of partial integration.
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