Globalisation and Macroeconomic Volatility

During the last decades, international goods markets have become more integrated, part of a phenomenon summarised as "Globalisation". Cross-border goods trade has intensified enormously, accompanied by a rise in offshoring of production into other countries. At the same time, the volatility of key macroeconomic variables has become more stable, a phenomenon known as "Great Moderation". Variability of economic growth and inflation rates has declined significantly. The coincidence with regard to their timing stimulates questions whether and how both phenomena are related. Through this thesis, the author introduces theoretical explanations and revises empirical results achieved up to now. Globalisation in economic terms can be defined as international integration of goods and factor markets. International integration of factor markets can imply different input factors of production such as capital and labour. Although globalisation in the sense of goods trade and financial flows has risen strikingly, other markets are still to a large degree national. There seems to be no will in industrialised countries to foster international integration of labour markets and lift restrictive immigration policies, diametrically opposed to pressure on developing countries for uncontrolled trade and capital policies. Macroeconomic volatility can refer to several macroeconomic aggregates such as output and its components, prices and employment. Volatility can be measured in various ways such as standard deviation or variation coefficient.

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Does globalisation affect economic stability? And if so, how? The interest of the book is in supposed effects of globalisation on macroeconomic volatility. Globalisation in economic terms can be defined as international integration of goods and factor markets. During the last decades, goods trade and financial flows have risen strikingly. Macroeconomic volatility can refer to several aggregates such as output and its components, prices and employment. During the Great Moderation , variability of economic growth and inflation rates has changed significantly. The first part focuses on the possible effect of international goods market integration on output volatility. Three candidate mechanisms are theoretically introduced and empirically tested. Those channels relate to external risk, offshoring and sudden stops. The second part describes other potential determinants of output volatility, such as the international integration of financial markets, monetary and fiscal policy, and shocks. Each determinant is theoretically described and empirically revised. The importance of globalisation relative to other sources in affecting output volatility is evaluated. The summarised findings of the analysis: A careful thesis about effects of globalisation on output volatility should be differentiated along several dimensions. Firstly, globalisation of goods and financial markets must be distinguished. Secondly, even for international goods trade various mechanisms affect the volatility of output differently. Thirdly, for each channel the direction and weight of the effect depend on country characteristics. In a conclusion the author offers alternative ways of interpretation for economic policy.