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Financial integration and macroeconomic volatility: evidence from Asia

Financial integration and macroeconomic volatility: evidence from Asia The purpose of this paper is to empirically examine the impact of financial integration on macroeconomic volatility for developing and emerging economies of Asia.Design/methodology/approachThe effects of financial integration and dynamics of macroeconomic volatility over time and across different groups of Asian economies vis-à-vis advanced economies are investigated using four different variables such as consumption, output, income and the ratio of consumption to income. Further, an empirical link between the degree of international financial integration and macroeconomic volatility for Asian economies is econometrically investigated using generalized method of moments (GMM) system one-step estimator.FindingsMacroeconomic volatilities of per capita output and consumption growth tend to be lower for advanced economies compared to Asian economies. The computed cross-sectional median of the volatility of consumption, output, income and the ratio of consumption volatility to income suggested that the volatility of advanced economies is lower compared to all the regions of Asia. GMM results suggested that the financial openness, trade openness and broad money are negatively and significantly associated with macroeconomic volatility whereas inflation is positively and significantly associated with macroeconomic volatility but the magnitude of trade openness is found to be negligible.Research limitations/implicationsThe present study has not included the effects of other country-specific variables (such as fiscal policy volatility) and other external factors to understand macroeconomic volatility.Practical implicationsHigh integration of economies promote economic growth, reduce macroeconomic volatility and reduce vulnerability to external shocks. This implies that policy makers should thrive to reform and create institutional infrastructure to deepen the integration.Originality/valueThe paper is an important empirical contribution toward examining the effects of financial integration on dynamics of macroeconomic volatility for a large number of Asian developing and emerging economics over time and across different groups using recent data and latest analytical framework and techniques. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic and Administrative Sciences Emerald Publishing

Financial integration and macroeconomic volatility: evidence from Asia

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1026-4116
DOI
10.1108/jeas-12-2017-0118
Publisher site
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Abstract

The purpose of this paper is to empirically examine the impact of financial integration on macroeconomic volatility for developing and emerging economies of Asia.Design/methodology/approachThe effects of financial integration and dynamics of macroeconomic volatility over time and across different groups of Asian economies vis-à-vis advanced economies are investigated using four different variables such as consumption, output, income and the ratio of consumption to income. Further, an empirical link between the degree of international financial integration and macroeconomic volatility for Asian economies is econometrically investigated using generalized method of moments (GMM) system one-step estimator.FindingsMacroeconomic volatilities of per capita output and consumption growth tend to be lower for advanced economies compared to Asian economies. The computed cross-sectional median of the volatility of consumption, output, income and the ratio of consumption volatility to income suggested that the volatility of advanced economies is lower compared to all the regions of Asia. GMM results suggested that the financial openness, trade openness and broad money are negatively and significantly associated with macroeconomic volatility whereas inflation is positively and significantly associated with macroeconomic volatility but the magnitude of trade openness is found to be negligible.Research limitations/implicationsThe present study has not included the effects of other country-specific variables (such as fiscal policy volatility) and other external factors to understand macroeconomic volatility.Practical implicationsHigh integration of economies promote economic growth, reduce macroeconomic volatility and reduce vulnerability to external shocks. This implies that policy makers should thrive to reform and create institutional infrastructure to deepen the integration.Originality/valueThe paper is an important empirical contribution toward examining the effects of financial integration on dynamics of macroeconomic volatility for a large number of Asian developing and emerging economics over time and across different groups using recent data and latest analytical framework and techniques.

Journal

Journal of Economic and Administrative Sciences – Emerald Publishing

Published: May 16, 2019

Keywords: Asia; Financial integration; GMM; Macroeconomic volatility

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