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Nominal Stability and Financial Globalization

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devereux_senay_sutherland_journal_of_money_credit_and_banking.pdf (370.6Kb)
Date
08/2014
Author
Devereux, Michael B.
Senay, Ozge
Sutherland, Alan
Funder
Economic & Social Research Council
Grant ID
ES/I024174/1
Keywords
Nominal stability
Financial globalization
Country portfolios
Bayesian DSGE approach
Monetary-policy rules
Business cycles
External wealth
Foreign-assets
Dynamics
Shocks
Liabilities
Portfolios
Frictions
HB Economic Theory
HG Finance
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Abstract
Over the past four decades, there has been a substantial increase in financial globalization, that is, rapid growth in gross external portfolio positions. There has also been a substantial fall in the variability of inflation. Many economists have conjectured that financial globalization contributed to the improved inflation performance. This paper explores the causal link running in the opposite direction. Using an open economy model with endogenous portfolio choice, it is shown that a monetary rule that reduces inflation variability tends to increase the size of gross external asset positions. This result appears to be robust across different modeling specifications.
Citation
Devereux , M B , Senay , O & Sutherland , A 2014 , ' Nominal Stability and Financial Globalization ' , Journal of Money, Credit and Banking , vol. 46 , no. 5 , pp. 921-959 . https://doi.org/10.1111/jmcb.12127
Publication
Journal of Money, Credit and Banking
Status
Peer reviewed
DOI
https://doi.org/10.1111/jmcb.12127
ISSN
0022-2879
Type
Journal article
Rights
© 2014. The Ohio State University. This is the accepted version of the following article: Nominal Stability and Financial Globalization Devereux, M. B., Senay, O. & Sutherland, A. Aug 2014 In : Journal of Money, Credit and Banking. 46, 5, p. 921-959, which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1111/jmcb.12127/abstract
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  • University of St Andrews Research
URI
http://hdl.handle.net/10023/9200

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