Staff Reports
Is the Integration of World Asset Markets Necessarily Beneficial in the Presence of Monetary Shocks?
November 2000 Number 114
JEL classification: F33, F36, F41, F42

Author: Cédric Tille

This paper evaluates the consequences of the integration of international asset markets when goods markets are characterized by price rigidities. Using an open economy general equilibrium model with volatility in the money markets, we show that such an integration is not universally beneficial. The country with the more volatile shocks will benefit whereas the country where the volatility of shocks is moderate will suffer. The welfare effects reflect changes in the terms of trade that occur because forward looking price setters adjust to the changes in exchange rate volatility brought about by the integration of international asset markets.

Available only in PDFPDF54 pages / 671 kb

For a published version of this report, see Cédric Tille, "The Welfare Effect of International Asset Markets Integration Under Nominal Rigidities," Journal of International Economics 65, no. 1 (January 2005):
221-47.

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