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The Macroeconomic Effects of World Trade in Financial Assets

Quarterly Review 1732 | Summer 1993

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photo of Harold L. Cole

Harold L. Cole

The Macroeconomic Effects of World Trade in Financial Assets

Abstract

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.


This is a revised version of a paper published in the _International Economic Review_ (May 1988, vol. 29, no. 2, pp. 237-59): "Financial Structure and International Trade" by Harold Cole. The article appears here with the permission of the University of Pennsylvania. © All rights reserved. https://doi.org/10.2307/2526664