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Federal Reserve Bank of Kansas City
Research Working Paper
Growth and Welfare Gains from Financial Integration Under Model Uncertainty
Yulei Luo
Jun Nie
Eric R. Young
Abstract

We build a robustness (RB) version of the Obstfeld (1994) model to study the effects of financial integration on growth and welfare. Our model can account for the empirically observed heterogeneity in the relationship between growth and volatility for different countries. The calibrated model shows that financial integration leads to significantly larger gains in growth and welfare for advanced countries than developing countries, with some developing countries experiencing growth and welfare loss in financial integration. Our analytical solutions help uncover the key mechanisms by which this happens.


Download https://dx.doi.org/10.18651/RWP2018-12
Cite this item
Yulei Luo & Jun Nie & Eric R. Young, Growth and Welfare Gains from Financial Integration Under Model Uncertainty, Federal Reserve Bank of Kansas City, Research Working Paper RWP 18-12, 07 Dec 2018.
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JEL Classification:
Subject headings:
Keywords: Robustness; Model Uncertainty; Financial Integration; Risk Sharing; Economic Growth; Welfare
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