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The two-sided effect of financial globalization on output volatility

Barbara Meller

No 2011,07, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank

Abstract: This paper provides evidence for a significant relation between international financial markets' integration and output volatility. In the framework of a threshold model, it is shown empirically that this relation depends on country's financial risk. Financial risk indicates a country's ability to pay its official, commercial and trade debts. In countries with low financial risk, financial openness decreases output volatility, while, in countries with high financial risk, financial openness increases output volatility. Extensive robustness checks confirm this result.

Keywords: output volatility; financial openness; financial risk (search for similar items in EconPapers)
JEL-codes: E32 F36 F41 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp2:201107

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