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Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity
Author(s) -
KALEMLIOZCAN SEBNEM,
PAPAIOANNOU ELIAS,
PEYDRÓ JOSÉLUIS
Publication year - 2013
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12025
Subject(s) - financial integration , globalization , synchronization (alternating current) , business cycle , financial globalization , contrast (vision) , economics , financial market , identification (biology) , financial regulation , business , international economics , finance , monetary economics , macroeconomics , market economy , computer science , channel (broadcasting) , computer network , botany , artificial intelligence , biology
We analyze the impact of financial globalization on business cycle synchronization using a proprietary database on banks’ international exposure for industrialized countries during 1978 to 2006. Theory makes ambiguous predictions and identification has been elusive due to lack of bilateral time‐varying financial linkages data. In contrast to conventional wisdom and previous empirical studies, we identify a strong negative effect of banking integration on output synchronization, conditional on global shocks and country‐pair heterogeneity. Similarly, we show divergent economic activity due to higher integration using an exogenous de‐jure measure of integration based on financial regulations that harmonized EU markets.