Globalisation and macroeconomic volatility

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Does globalisation impact economic stability? This book explores the effects of globalisation on macroeconomic volatility, defined as the international integration of goods and factor markets. Over recent decades, there has been a notable increase in goods trade and financial flows. Macroeconomic volatility encompasses various aggregates, including output, prices, and employment. The “Great Moderation” period saw significant changes in the variability of economic growth and inflation rates. The first section examines how international goods market integration influences output volatility through three theoretical and empirical mechanisms: external risk, offshoring, and sudden stops. The second section discusses additional determinants of output volatility, including the integration of financial markets, monetary and fiscal policies, and external shocks. Each determinant is analyzed theoretically and empirically, assessing the relative importance of globalisation compared to other factors. The findings indicate that a nuanced thesis regarding globalisation's effects on output volatility is essential. It is crucial to differentiate between the globalisation of goods and financial markets, as well as to recognize that various mechanisms influence output volatility differently. Additionally, the impact of each channel varies based on country-specific characteristics. The author concludes by suggesting alternative interpretation