This paper studies the relationship between the synchronization of financial cycles and financial integration using data on 30 OECD countries. The results suggest that the relationship is state-dependent: While financial integration acts as a “shock absorber” during normal times, the findings indicate that it facilitates “shock propagation” during financial crises. Overall, the findings show that while financial integration may be desired because it may facilitate risk diversification, additional macroprudential measures may be warranted to account for the risk exposure during times of crisis.

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