This paper examines the welfare implications of a country joining a currency union as opposed to operating in a flexible exchange rate regime. At the country level, the suboptimal response to domestic and foreign shocks and the inability of setting inflation at the desired level may be offset by...

This paper proposes an equilibrium relationship between expected exchange rate changes and differentials in expected returns on risky assets. We show that when expected returns on a risky asset in a certain economy are higher than the returns that are expected from investing in a risky asset in...

Using bilateral data on international equity and bond flows, we find that the prediction of the International Capital Asset Pricing Model is partially met and that global equity markets might be more integrated than global bond markets. Moreover, over the turbulent 1998-2001 period characterised...

We analyze the interlinkages between foreign direct investment (FDI) and foreign portfolio investment (FPI) between Germany and the major economies. First, we show that Tobin’s q helps explaining the variation of the growth rate of the stock of FDI. Second, we show that foreign and the home...

I use a static multi-sector, multi-labour, multi-household Applied General Equilibrium (AGE) model for Turkey to show that the trade policy implemented by Turkish policy-makers in the 1990s is not trade diverting. Aggregate welfare rises by 0.6% of the consumer income. Most importantly, since...

We use a Smooth Transition Conditional Correlation GARCH (STCC-GARCH) model applied to the euro area monetary policy rates and sovereign yields of Italy, Spain and Germany at 5-year maturity to estimate the threshold level of the signals above which the sovereign bond market moves to a crisis...

Cross-border mergers and acquisitions (M&As) sharply increased over the last two decades. It is often pointed out that cross-border capital reallocation is partly the result of financial liberalization policies, government policies and regional agreements. In this paper, we identify some of the...

In a panel covering a large number of countries from 1970 to 2003, we show that population ageing, institutions, money and deviations from the Uncovered Interest Parity (UIP) influence developments in net capital flows. Population ageing is associated with net equity inflows, net outflows in...

We investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries over the 1997 to 2001 period. We first argue that financial integration is not a global phenomenon, as equity and bond home biases declined significantly...