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Title:Financial openness and macroeconomic volatility PDF Logo
Authors:von Hagen, Jürgen
Zhang, Haiping
Issue Date:2006
Series/Report no.:ZEI working paper B 02-2006
Abstract:We analyze the implications of financial openness to macroeconomic volatility in a small open economy. Major macroeconomic aggregates show non-monotonic volatility patterns with respect to the degree of financial openness in the model without domestic financial frictions. The introduction of domestic financial frictions makes the volatility patterns flatter. Our model explains the lack of empirical evidence on the linkage between financial openness and macro volatility. If the empirical data of countries with different degree of financial openness are pooled, we cannot estimate a significant linear relationship between financial openness and macro volatility, because the underlying relationship is non-monotonic.
Subjects:Financial friction
Financial Openess
Foreign borrowing
Macroeconomic volatility
JEL:E32
E44
F34
F41
Document Type:Working Paper
Appears in Collections:ZEI Working Papers, Zentrum für Europäische Integrationsforschung, Universität Bonn

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