Empirical Assessments of Financial Interdependencies Since the 1970s
With both trade and financial globalization on the rise, 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. Especially, this 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.
This thesis is composed of three core chapters. The first proposes a portfolio optimization model to document the conditions and hypotheses under which financial flows to semi-periphery are procyclical or countercyclical to macroeconomic medium-term cycles in center economies. An empirical identification strategy is derived from the model. The findings indicate that financial flows to semi-periphery countries are countercyclical to these cycles for portfolio investments (in contrast to FDIs and portfolio investments to periphery countries). This suggests 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.
The second chapter complements the first. The study explains 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. A review of crisis episodes in semi-periphery countries since the 1970s confirms the model. It highlights 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.
Lastly, this study examines the evolution of international monetary policy spillovers. The findings indicate that these spillovers are sizable and have increased considerably since the 1980s. By exploiting a method to disentangle the evolution of spillovers driven by economic integration from those driven by changes in how countries react to foreign factors, it is shown that globalization is an important driver of these spillovers. This study also documents that the influence of the United States reached a peak around 2008 and supports the existence of multipolar interactions.
The manuscript was submitted to UCLouvain Saint-Louis Brussels in October 2022, and I conducted the public defense in March 2023.
I invite you to explore my thesis to gain a deeper understanding of these critical issues. Read my full thesis here.