The finding of Feldstein and Horioka (1980) that domestic saving and domestic investment are highly correlated across countries despite the rapid globalization and liberalization of financial markets in recent decades has been regarded as a Puzzle or Paradox. However, in this paper, we show that...

This paper analyzes the effect of government support for banks, such as recapitalizations on financial integration and firm outcomes. Using data on European syndicated lending, results show that bailout banks increase their home bias in lending by 24.6% more than non-bailout banks. In turn,...

Unlike the prediction of a frictionless open economy model, long-term average savings and investment rates are highly correlated across countries - a puzzle first identified by Feldstein and Horioka (1980). We quantitatively investigate the impact of two types of financial frictions on this...

How does international financial integration affect national price levels? To analyze this question, this paper formulates a two-country open economy sticky-price model under either segmented or complete asset markets. It is shown that the effect of financial integration, i.e. moving from...

I present a model that provides a theoretical solution to the Lucas Puzzle using Financial Efficiency, which is a time-varying component of TFP. The model predicts that a financially underdeveloped economy is to benefit from financial integration through FDI capital inflow only if it experiences...

The financial crisis in Europe has resulted in a new assessment of monetary and financial integration both in Europe and in Asia. Before the current crisis, regional integration in monetary and fiscal affairs including mechanisms to stabilize exchange rates enjoyed a lot of academic and...

The central objective of this paper is to empirically evaluate the degree of linkages among East Asian equity and bond markets. The primary contribution of our paper to the empirical literature is that we use a financial gravity model grounded in economic theory. Using data from the...

We discuss past performance and future challenges for the countries of Central and Eastern Europe (CEE). We highlight the successful convergence process of those countries, not least thanks to their integration into European and global value chains. As the external environment changes, so...

Focusing on five major emerging markets (EM), I investigate the interactions between credit default swap (CDS) premiums, foreign exchange (FX) parities, local currency government bond (LCB) spreads, and national stock market indices over the period 4/2/2007 to 8/27/2009. Empirical analysis...