Working Paper: NBER ID: w14336
Authors: Andrew K. Rose; Mark M. Spiegel
Abstract: This paper shows that proximity to major international financial centers seems to reduce business cycle volatility. In particular, we show that countries that are further from major locations of international financial activity systematically experience more volatile growth rates in both output and consumption, even after accounting for political institutions, trade, and other controls. Our results are relatively robust in the sense that more financially remote countries are more volatile, though the results are not always statistically significant. The comparative strength of this finding is in contrast to the more ambiguous evidence found in the literature.
Keywords: international financial remoteness; macroeconomic volatility; financial integration
JEL Codes: E32; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| international financial remoteness (F30) | macroeconomic volatility (E39) |
| greater remoteness (R39) | higher business cycle volatility (E32) |
| political institutions (D02) | macroeconomic volatility (E39) |
| financial remoteness (G59) | output volatility (E23) |