Increasing financial market integration, real exchange rates and macroeconomic adjustment

This paper is one of four in this Working Paper Series, focusing on financial liberalisation, along with those of Kupiec, Miller and Weller, and Driscoll. It examines the extent to which international financial markets have become more integrated over the past decade. The finding that financial markets are almost fully integrated, in contrast to goods markets which are not, has important implications for real interest rate differentials, real exchange rate behaviour and external adjustment. In particular, the reduced importance of external imbalance and the increased role of real interest rates in real exchange rate determination can be associated with more prolonged misalignments ... Le present document constitue l'une de quatre etudes de cette Serie consacree a la liberalisation financiere, avec celles de Kupiec, de Miller et Weller, et de Driscoll. Il examine les progres realises dans le processus d'integration des marches internationaux de capitaux au cours des dix dernieres annees. Le constat selon lequel les marches financiers sont devenus tres fortement integres, contrairement aux marches de biens qui ne le sont pas, a d'importantes consequences sur la formation des differentiels de taux d'interet reels, l'evolution des taux de change reels et l'ajustement exterieur. En particulier, l'importance reduite des desequilibres externes et le role accru joue par les taux d'interet reels dans la determination des taux de change reels peuvent etre associes a des phenomenes d'ajustements retardes ...