NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Regulation, Financial Globalization and the Synchronization of Economic Activity

Sebnem Kalemli-Ozcan, Elias Papaioannou, José Luis Peydró

NBER Working Paper No. 14887
Issued in April 2009
NBER Program(s):   EFG   IFM

We analyze the impact of financial globalization on business cycle synchronization utilizing a proprietary database on banks' international exposure for industrialized countries during 1978- 2006. Theory makes ambiguous predictions and identification has been elusive due to lack of bilateral time-varying financial linkages data. In contrast to conventional wisdom and previous empirical studies, we identify a strong negative effect of banking integration on output synchronization, conditional on global shocks and country-pair heterogeneity. Similarly, we show divergent economic activity as a result of higher integration using an exogenous de-jure measure of integration based on financial regulations that harmonized segmented EU markets.

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This paper was revised on December 5, 2011

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Document Object Identifier (DOI): 10.3386/w14887

Published: Sebnem Kalemli-Ozcan & Elias Papaioannou & José-Luis Peydró, 2013. "Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity," Journal of Finance, American Finance Association, vol. 68(3), pages 1179-1228, 06. citation courtesy of

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