Quarterly Review 1732
The Macroeconomic Effects of World Trade in Financial Assets
This article analyzes some of the potential effects of increased international financial integration within a simple two-country model. In the model, the article considers a switch in the menu of internationally traded financial securities from bonds to complete contingent claims and examines the impact of this switch on the stochastic properties, including the cross-country correlations, of standard macroeconomic aggregates like output, consumption, and labor effort, as well as the trade balance.
Reprinted From: International Economic Review (Vol. 29, No. 2, May 1988, pp. 237-259)
Download Paper (pdf)