International Financial Remoteness and Macroeconomic Volatility

Authors

Andrew K. Rose

Download PDF
(284 KB)

2008-01 | November 1, 2007

This paper shows that proximity to major international financial centers seems to reduce business cycle volatility. In particular, we show that countries that are further from major locations of international financial activity systematically experience more volatile growth rates in both output and consumption, even after accounting for domestic financial depth, political institutions, and other controls. Our results are relatively robust in the sense that more financially remote countries are more volatile, though the results are not always statistically significant. The comparative strength of this finding is in contrast to the more ambiguous evidence found in the literature.

About the Authors
Mark Spiegel is a senior policy advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Mark Spiegel