Quarterly Review 1732

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The Macroeconomic Effects of World Trade in Financial Assets

Harold L. Cole - Consultant

Summer 1993

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)

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