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Bank Integration and State Business Cycles

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  • Donald Morgan
  • Bertrand Rime
  • Philip E. Strahan

Abstract

We investigate how integration of bank ownership across states has affected economic volatility within states. In theory, bank integration could cause higher or lower volatility, depending on whether credit supply or credit demand shocks predominate. In fact, year-to-year fluctuations in a state's economic growth fall as its banks become more integrated (via holding companies) with banks in other states. As the bank linkages between any pair of states increase, fluctuations in those two states tend to converge. We conclude that interstate banking has made state business cycles smaller, but more alike. © 2004 MIT Press

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Bibliographic Info

Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 119 (2004)
Issue (Month): 4 (November)
Pages: 1555-1584

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Handle: RePEc:tpr:qjecon:v:119:y:2004:i:4:p:1555-1584

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