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 e↵ect of banking integration on output synchronization, conditional on global shocks and country-pair heterogeneity.
Financial Regulation, Financial Globalization and the Synchronization of Economic ActivityElias Papaioannou, Sebnem Kalemli-Ozcan and Jose Luis Peydro ,
3( 68 )
Journal of Finance