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The real effects of financial (Dis)integration: a multi-country equilibrium analysis of Europe

The real effects of financial (Dis)integration: a multi-country equilibrium analysis of Europe
The real effects of financial (Dis)integration: a multi-country equilibrium analysis of Europe
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.
cross-border financing, Europe, financial institutions, financial integration, global financial crisis
0304-3932
28-45
Chakraborty, Indraneel
d531140b-c0da-4661-87fe-22726f028bfb
Hai, Rong
4b4e2966-13c3-44aa-a213-97aa3d930fd2
Holter, Hans
5414f609-f25b-4b5e-bc32-dd5716f0f29a
Stepanchuk, Serhiy
ab625a3a-3db4-411f-90a4-1a2d2f9a0b17
Chakraborty, Indraneel
d531140b-c0da-4661-87fe-22726f028bfb
Hai, Rong
4b4e2966-13c3-44aa-a213-97aa3d930fd2
Holter, Hans
5414f609-f25b-4b5e-bc32-dd5716f0f29a
Stepanchuk, Serhiy
ab625a3a-3db4-411f-90a4-1a2d2f9a0b17

Chakraborty, Indraneel, Hai, Rong, Holter, Hans and Stepanchuk, Serhiy (2017) The real effects of financial (Dis)integration: a multi-country equilibrium analysis of Europe. Journal of Monetary Economics, 85, 28-45. (doi:10.1016/j.jmoneco.2016.11.003).

Record type: Article

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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Accepted/In Press date: 2 November 2016
e-pub ahead of print date: 10 November 2016
Published date: January 2017
Keywords: cross-border financing, Europe, financial institutions, financial integration, global financial crisis
Organisations: Economics

Identifiers

Local EPrints ID: 402796
URI: https://eprints.soton.ac.uk/id/eprint/402796
ISSN: 0304-3932
PURE UUID: dfbc19b5-0884-4d2b-ae91-18b8f178b507

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Date deposited: 15 Nov 2016 15:15
Last modified: 15 Aug 2019 05:14

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