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

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

doi:10.1016/j.jmoneco.2016.11.003

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 journal › Article › peer-review

7 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 language	English (US)
Pages (from-to)	28-45
Number of pages	18
Journal	Journal of Monetary Economics
Volume	85
DOIs	https://doi.org/10.1016/j.jmoneco.2016.11.003
State	Published - 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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title = "The real effects of financial (dis)integration: A multi-country equilibrium analysis of Europe",

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.",

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AU - Chakraborty, Indraneel

AU - Hai, Rong

AU - Holter, Hans A.

AU - Stepanchuk, Serhiy

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KW - Europe

KW - Financial institutions

KW - Financial integration

KW - Global financial crisis

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