The real effects of financial (dis)integration: A multi-country equilibrium analysis of Europe

Indraneel Chakraborty, Rong Hai, Hans A. Holter, Serhiy Stepanchuk

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

Using data from 15 European Union economies, we quantify the real effects of supply-side frictions due to the financial disintegration of European countries since the 2008 financial crisis. We develop a multi-country general equilibrium model with heterogeneous countries and destination-specific financial frictions. Financial institutions allocate capital endogenously across countries, determining the cost of capital to firms and the wealth of nations. The cost of financial disintegration is reduced access to capital for firms which results in lower output. Financial disintegration leads to a 0.54% fall in output in Europe since the crisis. We also estimate benefits of further financial integration.

Original languageEnglish (US)
Pages (from-to)28-45
Number of pages18
JournalJournal of Monetary Economics
Volume85
DOIs
StatePublished - Jan 1 2017

Keywords

  • Cross-border financing
  • Europe
  • Financial institutions
  • Financial integration
  • Global financial crisis

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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