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Finance and synchronization

Cesa-Bianchi, Ambrogio (2016) Finance and synchronization. CFM discussion paper series (CFM-DP2016-22). Centre For Macroeconomics, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2016 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
F - International Economics > F1 - Trade > F15 - Economic Integration
F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 12 Dec 2017 15:29
Last Modified: 14 Dec 2019 00:51
URI: http://eprints.lse.ac.uk/id/eprint/86226

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