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Global banks, financial shocks and international business cycles: evidence from an estimated model

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  • Robert Kollmann

Abstract

This paper estimates a two-country model with a global bank, using U.S. and Euro area (EA) data, and Bayesian methods. The estimated model matches key U.S. and EA business cycle statistics. Empirically, a model version with a bank capital requirement outperforms a structure without such a constraint. A loan loss originating in one country triggers a global output reduction. Banking shocks matter more for EA macro variables than for U.S. real activity. During the Great Recession (2007–09), banking shocks accounted for about 20 percent of the fall in U.S. and EA GDP, and for more than half of the fall in EA investment and employment.

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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 120.

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Date of creation: 2012
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Handle: RePEc:fip:feddgw:120

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Keywords: International finance ; Financial markets;

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Cited by:
  1. Yue ZHAO, 2013. "Role of Financial and Productivity Shocks in the US and Japan: A Two-Country Economy," KIER Working Papers 881, Kyoto University, Institute of Economic Research.
  2. In 'T Veld, Jan & Kollmann, Robert & Ratto, Marco & Roeger, Werner & Vogel, Lukas, 2014. "What drives the German current account? And how does it affect other EU member states?," CEPR Discussion Papers 9933, C.E.P.R. Discussion Papers.
  3. Jan in’t Veld & Robert Kollmann & Beatrice Pataracchia & Marco Ratto & Werner Roeger, 2014. "International Capital Flows and the Boom-Bust Cycle in Spain," CAMA Working Papers 2014-40, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Michal Brzoza-Brzezina, 2014. "Financial Frictions and Macroprudential Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 249-261, June.
  5. Robert Kollmann & Werner Roeger & Jan in'tVeld, 2012. "Fiscal Policy in a Financial Crisis: Standard Policy vs. Bank Rescue Measures," Working Papers ECARES ECARES 2012-006, ULB -- Universite Libre de Bruxelles.
  6. Christopher M. Gunn & Alok Johri, 2013. "Fear of Sovereign Default, Banks, and Expectations-Driven Business Cycles," Carleton Economic Papers 13-03, Carleton University, Department of Economics.
  7. Naohisa Hirakata & Takushi Kurozumi, 2013. "The International Finance Multiplier in Business Cycle Fluctuations," IMES Discussion Paper Series 13-E-12, Institute for Monetary and Economic Studies, Bank of Japan.
  8. Kollmann, Robert & Ratto, Marco & Roeger, Werner & in′t Veld, Jan, 2013. "Fiscal policy, banks and the financial crisis," Journal of Economic Dynamics and Control, Elsevier, vol. 37(2), pages 387-403.
  9. Matthieu Bussière & Jean Imbs & Robert Kollmann & Romain Rancière, 2013. "The Financial Crisis: Lessons for International Macroeconomics," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 75-84, July.

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