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Implementing Cross-Border Interbank Lending in BoC-GEM-FIN

Author

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  • Malik Shukayev
  • Argyn Toktamyssov

Abstract

BIS interbank lending data show that the Great Recession generated large and persistent changes in the international interbank lending positions of various countries. The main objective of this study is to understand the role of changes in international interbank credit flows in transmitting shocks across borders. To accomplish this task, we needed a global structural model with an international interbank market. Our search for a suitable structural model revealed that the Bank of Canada version of the global economy model (BoC-GEM-FIN) comes closest to our needs. BoC-GEM-FIN includes region-specific interbank markets, as well as some international borrowing and lending, but abstracts from the international interbank lending. This paper describes the modifications we made in order to introduce the international interbank market into BoC-GEM-FIN. The modified model is calibrated to match the changes in international interbank lending positions and the decline in the business lending of US banks that took place after the fourth quarter of 2008. Our simulations show that the international interbank market amplifies spillover effects of demand shocks but does not systematically alter the effects of supply shocks, including those for commodities.

Suggested Citation

  • Malik Shukayev & Argyn Toktamyssov, 2016. "Implementing Cross-Border Interbank Lending in BoC-GEM-FIN," Discussion Papers 16-19, Bank of Canada.
    • Handle: RePEc:bca:bocadp:16-19
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    References listed on IDEAS

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    1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    2. René Lalonde & Dirk Muir, 2007. "The Bank of Canada's Version of the Global Economy Model (BoC-GEM)," Technical Reports 98, Bank of Canada.
    3. Ali Dib, 2010. "Banks, Credit Market Frictions, and Business Cycles," Staff Working Papers 10-24, Bank of Canada.
    4. Carlos De Resende & René Lalonde, 2011. "The BoC-GEM-Fin: Banking in the Global Economy," Bank of Canada Review, Bank of Canada, vol. 2011(Summer), pages 11-21.
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    More about this item

    Keywords

    Business fluctuations and cycles; Economic models; International topics;
    All these keywords.

    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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