The Role of Financial Openness in the Euro Zone Crisis

Ersoy İ. S.

International Research Journal of Applied Finance, cilt.3, ss.686-701, 2012 (Hakemli Dergi)

Özet

The aim of this paper is to investigate the role of financial globalization in the Sovereign Debt crises of Greece, Portugal, Ireland, Spain and Italy. To that end, the paper first investigates the long-run equilibrium relationship between financial openness and output volatility of the concerned EMU members. Then, Granger causality analyses are employed to investigate the direction of causality between financial openness and output volatility for the same troubled EMU members again for the period of 1980-2009. Results of the bounds test for cointegration within the ARDL modeling approach of Pesaran et al. (2001) reveal level relationship between financial openness and output volatility for the concerned countries except for Spain. The Granger causality tests, on the other hand, display unidirectional causality from financial openness to GDP volatility only for Ireland and Portugal. Results suggest that the changes in financial openness do not precede growth volatility in Spain, Italy and Greece. The aim of this paper is to investigate the role of financial globalization in the Sovereign Debt crises of Greece, Portugal, Ireland, Spain and Italy. To that end, the paper first investigates the long-run equilibrium relationship between financial openness and output volatility of the concerned EMU members. Then, Granger causality analyses are employed to investigate the direction of causality between financial openness and output volatility for the same troubled EMU members again for the period of 1980-2009. Results of the bounds test for cointegration within the ARDL modeling approach of Pesaran et al. (2001) reveal level relationship between financial openness and output volatility for the concerned countries except for Spain. The Granger causality tests, on the other hand, display unidirectional causality from financial openness to GDP volatility only for Ireland and Portugal. Results suggest that the changes in financial openness do not precede growth volatility in Spain, Italy and Greece. (4) (PDF) The role of financial openness in the Euro-zone crisis.