We identify the effect of financial integration on international business cycle synchronization, by utilizing a confidential database on banks' bilateral exposure and employing a country-pair panel instrumental variables approach. Countries that become more integrated over time have less...

The literature has shown that the implied welfare gains from international financial integration are very small. We revisit the existing findings and document that welfare gains can be substantial if capital goods are not perfect substitutes. We use a model of optimal savings that includes a...