In this paper we study the effects of financial integration on risk-sharing. Conventional macroeconomic theory suggests that the integration of financial markets improves welfare. In contrast to the literature we assume that households have heterogeneous beliefs. Because of the differences in...

What are the effects of financial integration on global comovement? Using a standard two-country DSGE model, I show that in response to country-specific supply shocks higher exposure to foreign assets leads to lower cross-country output correlations, while the opposite is true for...

Our research aims to analyze the causal relationships in the behavior of public debt issued by peripheral member countries of the European Economic and Monetary Union (EMU), with special emphasis on the recent episodes of crisis triggered in the eurozone sovereign debt markets since 2009. With...

Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If cross‐currency flows are large, the hedging cost...

We theoretically illustrate how macroprudential policy spillovers through international capital flows can lead to uncoordinated policy choices that are tighter than would occur with coordination. We consider a symmetric two-country macro model in which countries have limited ability to issue...

This paper proposes a measure of exchange rate disconnect. Working in a two-currency international economy, our theory implies that the disconnect is the ratio of two martingales. Weanalyze empirically our measure of disconnect using 406 pairs of economies to reveal a geography of disconnect....

I present a model that provides a theoretical solution to the Lucas Puzzle using Financial Efficiency, which is a time-varying component of TFP. The model predicts that a financially underdeveloped economy is to benefit from financial integration through FDI capital inflow only if it experiences...

Recent empirical work has shown that current account deficits have been associated with lower growth in developing countries while they have been associated with higher growth in developed countries. This paper shows that this can be rationalized in an environment where firms face (i)...

Using the 2008-09 global financial crisis, this paper examines the role of different forms of international financial integration for asset price contagion in crisis times. Defining contagion as the transmission of financial market movements beyond the co-movements that would occur in 'tranquil'...

The economic crisis was initially supposed to affect only developed countries, but the financial troubles spread over the real economy and the crisis became a global phenomenon. After almost two years of difficulties, several lessons could be drawn from this episode: why the crisis was...