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An increasing number of countries have launched their central bank digital currencies (CBDC) in recent years, but the economic impacts of CBDC adoption are underexplored. To empirically assess how CBDC adoption influences regional economic integration, this paper investigates the Greater Bay Area, where China carried out one of its first digital renminbi pilot programs. The Greater Bay Area provides a good example because the growing acceptance of digital renminbi in the area can potentially mitigate transaction costs and risks due to the exchange rate volatility of the Chinese renminbi, Hong Kong dollar, and Macao pataca. CBDC adoption can lead to greater real and financial integrations by facilitating cross-border trade in goods and services. This paper evaluates deviations from uncovered interest rate parity, purchasing power parity, and real interest rate parity across Guangdong, Hong Kong, and Macao based on monthly interest rate and price data from January 2016 to December 2022. The time series have mean values near zero, which validate the parity conditions and indicate high degrees of financial, real, and economic integrations. The Markov regime-switching regression model identifies three regimes: (1) pre-Covid, (2) post-Covid, and (3) post-CBDC. The Covid-19 outbreak brought lower integration and stability, but the launch of the CBDC restored some of the pre-Covid integration and stability. Regimes 1 and 2 are persistent, and transitions from Regime 3 back to Regime 1 are probable. Hence, this study finds evidence that CBDC adoption improves regional economic integration in the short and long run. [ABSTRACT FROM AUTHOR]

This study examines the evolving convergence of bank cost efficiency in ASEAN from 1994 to 2022, focusing on the determinants influencing this trend during distinct periods. We aim to unravel the progression of convergence drivers and their policy implications. We employ the true fixed effect stochastic frontier approach (SFA) to estimate bank cost efficiency and identify a movement toward uniform efficiency across ASEAN banks using β-convergence and σ-convergence analyses. By examining conditional β-convergence in various sub-periods, we found that the initial convergence (1994–2000) was driven by economic growth and regulation, particularly aiding less developed economies. Post-crisis (2001–2009), banks in wealthier countries led efficiency gains, albeit with growing barriers from market concentration and regulatory intensity. As the sector matured (2010–2015), traditional drivers like GDP growth and regulation attenuated in influence, while bank size and national wealth supported further convergence. In the latest phase (2016–2022), traditional convergence drivers waned, signalling a shift in the banking landscape shaped by potential new factors such as fintech and consumer behaviour changes. The evolving nature of these determinants highlights the need for ASEAN banking policies to adapt proactively. Policymakers should consider flexible, forward-looking regulations that support efficiency convergence and sectoral integration amidst a rapidly changing financial landscape. [ABSTRACT FROM AUTHOR]

Scholars propose that global financial integration can boost foreign investment, technology transfer, and economic development, yet it presents challenges like inflation & financial risks. This study explores factors such as FDI, ODA, foreign assets, and external debt, shaping a country’s economic growth. Focused on Bangladesh, it employs the ARDL approach for connecting financial integration and economic growth. Findings show significant impacts, with ODA & foreign assets benefiting while external debt & FDI have negative effects. These insights aid policy formulation to optimize foreign capital inflows and mitigate adverse consequences, fostering economic growth, unveiling the relationship between financial openness and development.

Did policy interventions contribute to the gradual segmentation of lending markets starting with the 2007 - 2008 global financial crisis? We investigate this question in an international Cournot duopoly model with equity constraints. Two symmetric multinational banks compete for corporate lending via local affiliates in two separate national lending markets. Their credit risk in each market is determined by their choice of monitoring effort, which is more costly for foreign lending. Under a binding equity constraint, our model predicts the following: Shocks to bank equity, regulatory standards and monetary policy, such as occurred during and after the crisis, increase the lending home bias of multinational banks. We interpret this retrenchment as a flight to informationally closer or better understood lending. Our results under a non-binding equity constraint are largely identical. [ABSTRACT FROM AUTHOR]

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In this study, we adopt the structural vector auto-regressive (SVAR) model to assess the degree to which global uncertainties affect the relationship between financial integration and consumption smoothing in Egypt and Nigeria using quarterly data from 2010 to 2020. The study hypothesises that global uncertainty shocks will have adverse effects on consumption smoothing in both Nigeria and Egypt. Our main results from the study show that the economic policy uncertainty shock has a more declining effect on consumption smoothing in Egypt than other global uncertainty proxies. On the other hand, global economic condition shocks have a more declining effect on consumption smoothing in Nigeria than other global uncertainty proxies. In addition, financial integration accounted for more variability in consumption smoothing in Egypt than in Nigeria; this may be due to the fact that Egypt is more financially integrated than Nigeria. We therefore make the following recommendations: Nigeria may diversify the economy by promoting growth in other sectors, such as manufacturing, to reduce the impact of external shocks on the economy and provide greater stability for households. Policymakers in Egypt can diversify export markets and reduce reliance on the US market to mitigate the impact of US policy fluctuations on Egypt’s economy.

The aim of this paper is to examine the impact of a country's entry into the monetary union on its economic variables growth rate of real GDP as well as on GDP per capita growth for the period from 2010 to 2020. The clustering method and the ANFIS method were used in the data analysis. A total of two cluster analyses were performed. The first cluster includes countries that joined the EU in 2004 and became EZ members by 2010. The second cluster refers to those countries that joined the EU in 2004 but are not yet members of the EZ. For the first individual cluster analysis two models were analysed and for the second individual cluster three models were analysed using the ANFIS method. As expected, the results showed that GDP growth is connected with trade, inflation and gross investments in fixed capital in the observed countries, while GDP per capita is connected with unemployment, interest rates and public debt. With regard to GDP growth, the difference between countries that are in the eurozone and those that are not is not significant, which is in line with other studies. [ABSTRACT FROM AUTHOR]

We conducted a randomized, controlled trial with small- and medium-sized enterprises in Kenya to estimate the causal impact of an electronic payment (e-payment) technology on business finance. Using an encouragement design, we exogenously increased e-payment usage among a random subset of firms by relaxing adoption transaction costs and information barriers. Sixteen months after the intervention, we find that the e-payment technology increased access to mobile loans (in the number of loans as well as in the amount borrowed) by at least 50% (0.17 standard deviation), likely because of the reduction of information asymmetries brought by an increase in digital transactions. We find no effect of the e-payment technology on sales and profits, but we do find a reduction of sales volatility and precautionary investment, especially for smaller firms. This suggests that mobile loans help smaller firms cope with short-term negative shocks. We provide a stylized model of business finance that rationalizes these findings. This paper was accepted by Bruno Biais, finance. Funding: This paper was produced under the framework of the "Enabling Innovation and Productivity Growth in Low Income Countries (EIP-LIC/PO5639)" project, funded by the Department for International Development (DFID) of the United Kingdom and implemented by Tilburg University. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4821. [ABSTRACT FROM AUTHOR]

In the recent 20 years, the capital flows between Korea and European Union have increased and diversified. In particular, the business cycles of two economies have shown similar patterns since the Global Financial Crisis. This study examines both trends and investigates the roles of finance and trade on business cycle co-movements between two economies. The empirical results show that the business cycles can diverge due to either the common shocks or the country-specific shocks. Furthermore, financial integration increases the business cycle co-movements driven by both the country-specific shocks and the common shocks between two economies.

Using a sample of East Asian banks covering the period 1999–2014, this paper analyses the impact of natural disasters on commercial bank performance and how financial integration moderates this relationship. A dynamic GMM model reveals that natural disasters significantly lower deposit ratios but have no contemporaneous relationship with liquidity, credit risk, profitability and default risk. There is also evidence of a lagged effect of disasters, increasing deposits and lowering liquidity one year after the event. Furthermore, foreign banking claims, specifically those extended by regional Asian lenders, help to alleviate the deposits decline in the aftermath of natural disasters. These baseline findings are mainly driven by severely affected countries. Overall, the paper highlights the role of commercial bank deposits and foreign banking claims as sources of finance for post-disaster recovery. In particular, the resilience of Asian foreign claims in the event of natural disasters provides evidence to support intra-regional financial integration in East Asia. [ABSTRACT FROM AUTHOR]

Using developing countries in Europe for context, this study examines the complex relationship between financial crises and financial integration. We use panel data comprising 37 countries in Europe, including Iceland, Belarus, Ukraine, Turkey, and Russia from 2000-2019 and the general method of moments. Our findings show that there is a positive relationship between financial integration and development and economic growth. In addition, the results suggest that a higher degree of financial integration is not necessarily increasing financial fragility during a financial crisis. Therefore, the results show that it is a self-defeating policy for developing countries to apply a strategy of financial protectionism over a financial crisis. [ABSTRACT FROM AUTHOR]

The integration of financial markets has increased following the emergence of globalization, technological advances, and the modernization of payment systems. Capital account liberalization also contributed to the global trend of financial integration. The aim of the work is to explain the concept of financial integration and to determine the current conditions for financial integration. Descriptive statistical methods such as descriptive methods, hypothetical-deductive methods, methods of generalization and abstraction, and methods of systematization and comparison were used in the research. The basic conclusion reached is that it is necessary for countries to be integrated into the global world market, but also that all countries (especially small countries) must take care to adapt their opening to the world market to the current macroeconomic conditions of that country. The above is necessary in order for the benefits of integration to be greater than he costs. Financial integration therefore appears as a very important issue, because both the economic literature and empirical research show that the integration and development of financial markets contribute to economic growth, influencing free exchange and more efficient allocation of capital. [ABSTRACT FROM AUTHOR]

This study investigates the impact of financial integration on international dynamics from the perspective of volatility shocks. By incorporating time-varying volatilities, recursive preferences, and a global bank into the IRBC model, it illustrates that volatility shocks trigger precautionary saving incentives, but the specific effects vary based on the type of shock. Financial integration facilitates international capital flows and leads to an unequal distribution of international bank loans between two countries, resulting in greater divergence in their business cycles in the presence of productivity volatilities. In contrast, countries with higher financial integration experience more synchronized business cycles, due to simultaneous fluctuations in the international financial market, ultimately yielding greater synchronization in the face of financial volatilities. Disregarding volatility shocks leads to underestimating the impact of financial integration on the comovement of business cycles across countries. Furthermore, welfare analysis also indicates that financial markets play a crucial role in enhancing social welfare, regardless of the type of volatility. [ABSTRACT FROM AUTHOR]

The aim of this paper is to examine the impact of a country’s entry into the monetary union on its economic variables growth rate of real GDP as well as on GDP per capita growth for the period from 2010 to 2020. The clustering method and the ANFIS method were used in the data analysis. A total of two cluster analyses were performed. The first cluster includes countries that joined the EU in 2004 and became EZ members by 2010. The second cluster refers to those countries that joined the EU in 2004 but are not yet members of the EZ. For the first individual cluster analysis two models were analysed and for the second individual cluster three models were analysed using the ANFIS method. As expected, the results showed that GDP growth is connected with trade, inflation and gross investments in fixed capital in the observed countries, while GDP per capita is connected with unemployment, interest rates and public debt. With regard to GDP growth, the difference between countries that are in the eurozone and those that are not is not significant, which is in line with other studies. First published online 14 March 2024

Global banks and interconnected national banking sectors have been a main characteristic of the modern international financial systems over the last half century. After a sluggish wake up in the early postwar years, international banking took off in the 1970s as the Euromarkets gained traction and strongly developed in the lead up to the international debt crisis of 1982. This article examines the birth of bank globalization in Latin America, a region of the developing world at the centre of global finance and Euromarket developments during this period. It shows that, like their counterparts in industrial countries, leading banking institutions from the region also went international, expanding their presence overseas and their participation in the Euromarkets. The world leading financial centres of London and New York were the main destinations, but they also settled in offshore centres in the Caribbean and other US financial districts from where they conducted international business on their own or in collaboration with other banks. The presence in Germany along with the joint business between Latin American and German banks in the Euromarkets are explored as well. While assessing the extent and scope of early Latin American bank globalization for the first time, the article also provides insights on the evolution and changing nature of this process over the following period.

The determinants of financial development in developing and emerging economies are examined in this article. The long-term relationships between banking sector development, financial integration, trade openness, and economic growth are explored using FMOLS-DOLS panel estimations spanning from 1980 to 2021. The critical significance of economic growth, trade openness, and financial liberalization as fundamental drivers of banking system progress is underscored by the results. To investigate this relationship, two specifications are introduced to measure banking sector development: private credits (specification 1) and the ME ratio (specification 2), which is defined as the ratio of M3 to GDP. In the context of specification 1, quantitative outcomes reveal that a 1% increase in economic growth results in a substantial rise of 0.207% in banking sector development according to FMOLS, and 0.972% according to DOLS. Similarly, a 1% increase in trade openness has a noteworthy positive impact of 0.019% on banking development. Furthermore, the results indicate that financial liberalization contributes positively to banking sector development, with an effect of 0.002%. In the context of specification 2, the impact of economic growth is more pronounced, with a significant increase of 0.3187% (FMOLS) and 0.852% (DOLS). However, trade openness (TRADE_OP) manifests a negative impact of –0.392% (FMOLS) and a positive impact of 0.0162% (DOLS). In conclusion, the critical importance of economic growth, trade openness, and financial liberalization in the development of the banking sector in developing and emerging economies is underscored by the empirical evidence. Prudent economic and financial policies, along with strengthened regulation and supervision, are recommended to foster sustainable and resilient financial development in these contexts.

This study seeks to empirically explore whether the regulatory quality in the NMS-10 impacts deepening international financial integration and whether the strengthening of regulatory quality for NMS-10 has a causal effect on the level of international financial integration (IFI) in NMS-10. The study covers NMS-10 between 1995 and 2020. The estimation of parameters was made with descriptive statistics, the Breusch-Pagan test, the Pesaran test, the Granger causality test, and OLS regression to analyze the impact of REQ on IFI. The findings of the study reveal that regulatory quality has a statistically significant effect in deepening the process of financial integration for both periods, in the pre-accession and post-accession EU process. In addition, the results demonstrate that the regulatory quality of NMS-10 provides sound laws and policies that support the business environment, encourage cross-bordering financial transactions. Moreover, the results of the Granger causality test show that the level of global financial integration is causally impacted by the improvement in NMS-10 regulatory quality. This indicates that regulatory effectiveness might predicts international financial integration.

The study investigated the existence of volatility and spillover effects between sovereign bond returns of South Africa and Ethiopia and the world's long-term interest rate using multivariate generalized autoregressive conditional heteroskedasticity model. The results showed that volatility from the long-term world interest rate negatively affects the Ethiopian sovereign bond market. The results also showed a one-way spillover from South Africa's market to the US long-term market, then from the U.S. to Ethiopia's market, and further from Ethiopia's to South Africa's market. However, no bidirectional spillover was observed within these markets. Besides, both African markets display high volatility persistence. Besides, the markets have a weak or insignificant correlation with the world's long-term interest rate. Volatility in the markets is significantly affected by their respective past shocks or volatilities. Finally, it has forwarded policy inputs that should be tailored to the specific economic and financial context of each country. [ABSTRACT FROM AUTHOR]

This paper relies on a high‐frequency identification approach to provide new insights into monetary policy spillovers by major central banks. Our long and broad sample (1999–2019, from four major economies to 47 advanced and emerging market economies) allows us to accurately identify the properties of spillovers and to shed light on different transmission channels. We find that spillovers by the Fed to foreign interest rates are economically large, but more surprisingly, document an intensification of spillovers by the European Central Bank over time. Spillovers are more significant to bond yields in advanced economies than they are to those in emerging markets. Differentiating across key spillover channels, we find strongest support for a financial links channel, but weaker evidence for the macroeconomic links channel and foreign exchange regime channel. [ABSTRACT FROM AUTHOR]

This paper examines empirically the extent to which financial development, financial integration and exchange rate regime (ERR) altogether influence positively economic growth in Africa. To achieve this, we build two baseline panel data samples of African countries and new expanded datasets spanning 1980-2015 using a small sample adjusted Generalized Method of Moments (GMM) estimator. To check the robustness of our results, we build two other panel samples by adding on the two previous panel data samples, data from emerging and developed countries and repeat the analysis. The results from the estimations suggest that financial development and financial integration influence positively and significantly economic growth, whereas exchange rate regime has no significant effect on economic performance, controlling for the usual growth- regression variables like trade openness, human capital, investment, governance and the lagged value of per capita GDP.

This paper documents risk‐neutral moments of returns on 29 country‐/region‐specific ETFs to provide international uncertainty proxies for as many locations as possible. Our evidence shows these ETFs can generally reflect idiosyncratic information from international markets, but the predictive abilities of risk‐neutral moments are heterogeneous among them. The evidence from panel prediction shows that the risk‐neutral standard deviation (VOL) can positively predict, but skewness (SKEW) and excess kurtosis (KURT) negatively predict, the future excess returns in time‐series analysis. Moreover, results from the post‐ranking performance show that the ETFs with low SKEW on average earn an extra 4.55% annualized monthly excess return, compared with those with high SKEW. [ABSTRACT FROM AUTHOR]

After more than 40 years of long-term development, as a pioneer of China's reform and opening up, the Yangtze River Delta region has made tremendous economic progress and strong scientific and technological innovation strength, which has made the economy flourish and scientific and technological innovation strength strong. However, in the process of financial growth in the Yangtze River Delta, there are also financial structures that do not match the optimization of industrial structure, thus hindering the quality and efficiency of industrial structure optimization, thus affecting the strategic function of industrial development. For the development of the financial field, this paper applies the real-time data processing system of the Internet of Things based on blockchain technology to analyze the financial industry of the Yangtze River Delta urban agglomeration. The Internet of Things, based on the technology of real-time data processing system, can store different types of financial assets. These assets are a common component of supporting the application of the Internet of Things. They mix and build a powerful back-end process that can support the data processing application of the Internet of Things. Therefore, the Internet of Things data network and other information are stored in the data structure, so that data analysis and consolidation can be carried out with consensus, Thus, the processing efficiency of relevant financing data in the Yangtze River Delta region has been greatly improved, and the development process of the financial sector in the region has been effectively accelerated. Therefore, the research on this issue will enable the financial industry to give full play to its potential as a major component of national economic development, so as to maximize the improvement of the industrial structure and promote the development of blockchain and Internet of Things technologies. [ABSTRACT FROM AUTHOR]

The integration of countries' financial markets shows whether investors will be exposed to global or local risk factors in international financial asset investments. In this context, the aim of the study is to evaluate the level of financial integration of developed and developing countries with global markets. In the study, the financial market integration of 65 countries was calculated using the correlation approach and the International Capital Asset Pricing Model-based approach. According to these approaches, it shows that the integration of developed and developing countries with global markets is not complete. For this reason, investors have to consider both global and local risk factors in investments made in the countries that are the subject of the analysis. [ABSTRACT FROM AUTHOR]

The study measures and compares the levels of financial integration in Bosnia and Herzegovina and Slovenia between 2000 and 2020. This study aims to determine the impact of industrial index, gross domestic product per capita, trade openness, and corporate tax rate on the level of international financial integration. The statistical methods employed are unit root tests, OLS regression, the Breusch-Pagan test, and the heteroskedasticity test. For the 20-year time span and annual data for each parameter, the results have shown a significant positive correlation between gross domestic product per capita and financial integration for both countries. The results for Slovenia indicate that financial integration is negatively affected by trade openness and corporate tax rates, whereas gross domestic product per capita and industrial production index affect positively. In the case of Bosnia and Herzegovina, corporate tax rate and industrial production index affect financial integration negatively, while trade openness affect positively but insignificant with financial integration. [ABSTRACT FROM AUTHOR]

In today's increasingly interconnected global economy, understanding the mechanisms that influence consumption smoothing has become crucial for policymakers and economists alike. In this study, the effect of income, income asymmetry and financial integration on consumption smoothing in Africa was estimated. The study covers the period 1985-2020 using panel data on 10 countries. Estimation is done using the Dynamic Common Correlated Effects (DCCE) estimation technique. It is shown that asymmetry existed in the short run given the significance of Wald test for asymmetry (P<0.05). Furthermore, positive income asymmetry (ß= - 0.7365, z= -2.47), and negative income asymmetry (ß= 0.8541, z=2.66), exerts statistically significant effects on consumption smoothing. In the long run, positive income asymmetry (ß=3.2595, z=2.17) has significant effect on consumption smoothing. Results from the equation with income asymmetry interacted with financial integration indicates that in the short run, positive income asymmetry (ß= -3.7772, z= -2.17), and its interaction with financial integration (ß= -3.8545, z= -2.06) exerts significant effects on consumption smoothing. The study recommends that governments could consider implementing regulations and controls on international financial flows to limit the impact of external shocks, howbeit with caution, given the consumption smoothing reducing effect of the interaction of positive income asymmetry and financial integration. [ABSTRACT FROM AUTHOR]

This article revisits the Portfolio Theory of Inflation (PTI), with a view to further articulating its findings and implications. The article adds to the micro-foundations of the PTI, framing more rigorously the role of global investors as international allocators of capital resources, and providing richer analysis of their interaction with macroeconomic policies at country level. The article explores how country credibility enters the capital allocation choice process of global investors and how global investor choices shape the space available to country policy making, determining the extent to which the effect of macro-policies dissipates into exchange rate depreciation and higher inflation. [ABSTRACT FROM AUTHOR]

Research aims: International investments made in non-integrated economies provide benefits of portfolio diversification, but investment made in integrated economies may lead to oscillations due to volatility spillover. Therefore, the knowledge of market linkage of an economy is imperative for investors, as well as regulators. In this context, the present paper investigates the financial integration of the Indian stock market with China, Hong Kong, Japan, UK and USA. Design/Methodology/Approach: To examine the financial integration in the long run, closing daily indices of leading stock markets of respective countries have been analysed through the Johansen cointegration method over a period of 20 years from 2002 to 2022. The vector error correction model has been applied to examine whether market equilibrium can be restored after an infusion of shock. The short run linkage has been investigated through a causality test. Further the possibility of volatility spillover has been examined through variance decomposition and impulse response function. Research findings: The results show cointegration among the selected markets, which indicates the possibility of convergence towards market equilibrium in the long run. The stock markets of India and USA were observed to have a bidirectional causal relationship indicating lesser chances of benefits from international portfolio diversification. The results reveal the sensitivity of the Indian stock market to innovations in the UK and USA. However, no significant influence of the Hong Kong, Japanese, and Chinese stock markets has been observed on the Indian stock market. Further, the Indian stock market has a significant contribution to the volatility of other stock markets, except the Chinese stock market. Theoretical contribution/Originality: The present study is crucial owing to two prominent reasons. Firstly, the linkage between various financial markets is very dynamic and needs to be studied in the present context. Secondly, the linkage of Indian economy with other countries has increased manifolds in recent few years so it will be fruitful to analyse the linkage of Indian economy with other economies. Practitioner/Policy implications: The findings are useful to investors while designing international portfolios to reap diversification benefits. The results are fruitful for market regulatory bodies to mitigate the adverse impact of volatility spillover. Research limitation/Implications: The study can be extended to other markets, monthly data and different sub-periods. [ABSTRACT FROM AUTHOR]

Health systems continue to grow in size. Financial integration-the ownership of hospitals or physician practices-often has anticompetitive effects that contribute to the higher prices for health care seen in the US. To determine whether the potential harms of financial integration are counterbalanced by improvements in quality, we surveyed nationally representative samples of hospitals (n = 739) and physician practices (n = 2,189), stratified according to whether they were independent or were owned by complex systems, simple systems, or medical groups. The surveys included nine scales measuring the level of adoption of diverse, quality-focused care delivery and payment reforms. Scores varied widely across hospitals and practices, but little of this variation was explained by ownership status. Quality scores favored financially integrated systems for four of nine hospital measures and one of nine practice measures, but in no case favored complex systems. Greater financial integration was generally not associated with better quality.

The process of financial integration is at the center of interest for all economic entities. A higher level of financial integration contributes to the improvement of the performance of national economies by reducing capital costs and improving the allocation of financial resources. With the trend of globalization since the late 1980s, the process of financial integration has been taking place as a result of the removal of barriers to the movement of capital between countries. This paper qualitatively analyzes financial integration and financial integration indicators. In this context, special attention in the paper is devoted to the integration of the banking sector of the Republic of Serbia. The structure of the banking sector of the Republic of Serbia is examined, as well as the values of concentration and competition indicators - the Herfindahl-Hirschman Index and CR5. The data was collected during a ten-year period that spans from the aftermath of the global economic crisis and continues until the onset of the COVID-19 pandemic. Additionally, profitability indicators (ROA and ROE) in Western Balkan countries were observed from 2013 to 2020.

The purpose of this study is to examine the synchronism between the US capital markets (DJ, S&P 500), the United Kingdom (FTSE 100), Canada (S&P/TSX), Germany (DAX 30), France (CAC 40), Japan (Nikkei 225), Italy (Italy Ds Market and major cryptocurrencies such as Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), and the Crypto 10 index, from February 2018 to November 2021. Based on the findings, we found that BTC and ETH cryptocurrencies drastically reduced their level of integration with their peers over the 2020 worldwide pandemic era, whereas LTC maintained. We also discovered that the Dow Jones, S&P 500, and DAX 30 stock indexes lowered their level of integration when compared to the pre-covid subperiod. For the UK capital market (FTSE 100), Canada (S&P/TSX), Japan (Nikkei 225), France (CAC 40), and Italy (Italy Ds Market) the level of integration increased significantly. These findings support, in part, our research question, that during periods of stress and uncertainty in the global economy capital markets tend towards integration, thus calling into question the hypothesis of efficient portfolio diversification.

This article revisits the Portfolio Theory of Inflation (PTI) proposed in my original work published earlier (Bossone, B. (2019, 4 June). The portfolio theory of inflation and policy (in)effectiveness. Economics Journal, 1–25. Article No. 2019-33.), with a view to further articulate its findings and implications. The article adds to the micro- and macro-foundations of the PTI model of the economy, framing the portfolio choices of global investors more rigorously, providing richer analysis of their macroeconomic effects, and in the process also correcting errors contained in the original PTI formulation. The article explores additional dimensions of how capital allocation choices by global investors interact with government macro-policies, and further studies how such choices shape the space available to country authorities for active macro-policies. The article further evaluates the results from the revisited model on the dynamics of exchange rate, inflation, and output following macro-policy shocks, and appraises the implications of the PTI for macro-policy effectiveness when due consideration is given to stock variables, as opposed to flow variables only, in the context of highly internationally financially integrated economies. Finally, the article considers what is new about the PTI as a theory of inflation and clarifies some of its possible misinterpretations.