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Financial Openness, Financial Frictions, and Macroeconomic Fluctuations in Emerging Market Economies

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  • Yong Ma

Abstract

This article develops an open economy DSGE model which takes into account the effects of financial openness and the associated financial frictions on macroeconomic fluctuations by introducing a modified version of interest parity. Evidence from the Chinese economy shows that the model provides a reasonable description of China’s financial openness and financial frictions during the sample period. Further evidence from comparative analysis shows that in most cases an increase in financial openness, usually accompanied by a decrease in financial frictions, leads to flatter volatility patterns with respect to domestic shocks but sharper volatility patterns in the presence of foreign shocks.

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  • Yong Ma, 2016. "Financial Openness, Financial Frictions, and Macroeconomic Fluctuations in Emerging Market Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(1), pages 169-187, January.
  • Handle: RePEc:mes:emfitr:v:52:y:2016:i:1:p:169-187
    DOI: 10.1080/1540496X.2014.998549
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    Cited by:

    1. Yuan, Shenguo & Wu, Zhouheng & Liu, Lanfeng, 2022. "The effects of financial openness and financial efficiency on Chinese macroeconomic volatilities," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    2. Yong Ma & Yiqing Jiang, 2023. "Gradual financial integration and macroeconomic fluctuations in emerging market economies: evidence from China," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(2), pages 275-310, April.
    3. Ma, Yong & Jiang, Yiqing & Yao, Chi, 2022. "Trade openness, financial openness, and macroeconomic volatility," Economic Systems, Elsevier, vol. 46(1).

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