The short- and long-run implications of financial integration on macroeconomic stability

Abstract

In this paper I review the main theoretical and empirical results on the relationship between financial integration and macroeconomic stability, namely the volatility of consumption growth. I construct two robust price-based indicators of financial integration. Additionally, I evaluate the implication of financial integration using the Diebold & Yilmaz (2012) spill over index as measure of financial integration. Empirical analysis is run on two country-groups (i.e. developed and emerging countries), using both time-series and panel approach. I also evaluate the short- and long-run implications of financial integration by applying a pooled mean group regression model. The main results are followed by a battery of robustness checks.