Financial openness and macroeconomic volatility

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEI Working Paper ; No. B 02-2006

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; International Lending and Debt Problems ; Open Economy Macroeconomics
• Subject: Financial friction ; Financial Openess ; Foreign borrowing ; Macroeconomic volatility

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): von Hagen, Jürgen ; Zhang, Haiping
• Event: Veröffentlichung
• (who): Rheinische Friedrich-Wilhelms-Universität Bonn, Zentrum für Europäische Integrationsforschung (ZEI)
• (where): Bonn
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/39524
• Last update: 10.03.2025, 11:44 AM CET