Nominal Stability and Financial Globalization

Michael B. Devereux*, Ozge Senay, Alan Sutherland

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    6 Citations (Scopus)
    4 Downloads (Pure)


    Over the past four decades, there has been a substantial increase in financial globalization, that is, rapid growth in gross external portfolio positions. There has also been a substantial fall in the variability of inflation. Many economists have conjectured that financial globalization contributed to the improved inflation performance. This paper explores the causal link running in the opposite direction. Using an open economy model with endogenous portfolio choice, it is shown that a monetary rule that reduces inflation variability tends to increase the size of gross external asset positions. This result appears to be robust across different modeling specifications.

    Original languageEnglish
    Pages (from-to)921-959
    Number of pages39
    JournalJournal of Money, Credit and Banking
    Issue number5
    Early online date24 Jul 2014
    Publication statusPublished - Aug 2014


    • Nominal stability
    • Financial globalization
    • Country portfolios
    • Bayesian DSGE approach
    • Monetary-policy rules
    • Business cycles
    • External wealth
    • Foreign-assets
    • Dynamics
    • Shocks
    • Liabilities
    • Portfolios
    • Frictions


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