Empirical Assessments of Financial Interdependencies Since the 1970s

Abstract

The main objective of this thesis is to assess whether financial interdependencies today are different from those in the past decades and whether such differences can be attributed to economic globalization. The study focuses on the impacts of medium-term cycles in center economies on short-term international financial flows to semi-periphery economies and the evolution of international monetary policy spillovers. The thesis is structured around three core chapters: (1) A portfolio optimization model that documents the conditions and hypotheses under which financial flows to semi-periphery are procyclical or countercyclical to macroeconomic medium-term cycles in center economies, finding that financial flows to semi-periphery countries are countercyclical to these cycles for portfolio investments, suggesting that portfolio investors shift part of their investments from center to semi-periphery economies during periods of lower returns in center economies, and vice versa. (2) An examination of how macroeconomic medium-term cycles in center economies trigger countercyclical financial flows to semi-periphery countries that subsequently induce balance-of-payment crises in these economies, highlighting that the last three waves of crises that affected semi-periphery economies are each linked with the medium-term cycles in center economies and disruptive international financial flows. (3) An analysis showing that international monetary policy spillovers are sizable and have increased considerably since the 1980s, with globalization shown to be an important driver of these spillovers.