International Financial Integration and Crisis Contagion

• 成果类型: Article
• 署名作者: Devereux, Michael B.; Yu, Changhua
• 署名单位: University of British Columbia; National Bureau of Economic Research; Center for Economic & Policy Research (CEPR); Peking University
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdz054
• 发表日期: 2020
• 页码: 1174-1212
• 关键词: Capital controls; business cycles; welfare gains; monetary-policy; equity premium; banking crises; credit booms; global banks; GLOBALIZATION; transmission

摘要

International financial integration helps to diversify risk but also may spread crises across countries. We provide a quantitative analysis of this trade-off in a two-country general equilibrium model with collateral-constrained borrowing using a global solution method. Borrowing constraints bind occasionally, depending upon the state of the economy and levels of inherited debt. We examine different degrees of international financial integration, moving from financial autarky, to bond and equity market integration. Financial integration leads to a significant increase in global leverage, substantially escalates the probability of crises for any one country, and dramatically increases the degree of contagion across countries. Outside of crises, the impact of financial integration on macroeconomic aggregates is relatively small. But the impact of a crisis with integrated international financial markets is much less severe than that under financial market autarky. Thus, a trade-off emerges between the probability of crises and the severity of crises. Using a large cross-country database of financial crises in developing and developed economies over a forty-year period, we find evidence in support of the model.