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Domestic Credit Growth and International Capital Flows

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  • Philip Lane

    ()
    (Trinity College Dublin)

  • Peter McQuade

    ()
    (European Central Bank)

Abstract

Europe experienced substantial cross-country variation in domestic credit growth and cross-border capital flows during the pre-crisis period. We investigate the inter-relations between domestic credit growth and international capital flows over 1993-2008, with a special focus on the 2003-2008 boom period. We establish that domestic credit growth in European countries is strongly related to net debt inflows but not to net equity inflows. This pattern also holds for an extended sample of 54 advanced and emerging economies.

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Bibliographic Info

Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp428.

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Length: 65 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:iis:dispap:iiisdp428

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Keywords: domestic credit growth; international capital flows;

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References

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  1. Enrique Mendoza & Marco Terrones, 2012. "An Anatomy of Credit Booms and their Demise," Working Papers Central Bank of Chile 670, Central Bank of Chile.
  2. Yener Altunbas & Leonardo Gambacorta & David Marques, 2008. "Securitization and the bank lending channel," Proceedings 1101, Federal Reserve Bank of Chicago.
  3. Friederike Niepmann, 2011. "Banking across Borders," DNB Working Papers 325, Netherlands Central Bank, Research Department.
  4. Martin Schmitz, 2009. "Financial Reforms and Capital Flows to Emerging Europe," The Institute for International Integration Studies Discussion Paper Series iiisdp278, IIIS.
  5. Lane, Philip R., 2013. "Capital Flows in the Euro Area," CEPR Discussion Papers 9493, C.E.P.R. Discussion Papers.
  6. Oscar Jorda & Moritz Schularick & Alan Taylor, 2012. "When Credit Bites Back: Leverage, Business Cycles and Crises," Working Papers 1224, University of California, Davis, Department of Economics.
  7. Javier Bianchi, 2009. "Overborrowing and systemic externalities in the business cycle," Working Paper 2009-24, Federal Reserve Bank of Atlanta.
  8. Sebastian Barnes & Philip R. Lane & Artur Radziwill, 2010. "Minimising Risks from Imbalances in European Banking," OECD Economics Department Working Papers 828, OECD Publishing.
  9. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2010. "Market freedom and the global recession," CEPR Discussion Papers 7884, C.E.P.R. Discussion Papers.
  10. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2011. "External Adjustment and the Global Crisis," CEPR Discussion Papers 8546, C.E.P.R. Discussion Papers.
  11. Nicola Cetorelli & Linda S. Goldberg, 2012. "Banking Globalization and Monetary Transmission," Journal of Finance, American Finance Association, vol. 67(5), pages 1811-1843, October.
  12. Anton Jevcak & Ralph Setzer & Massimo Suardi, 2010. "Determinants of Capital Flows to the New EU Member States Before and During the Financial Crisis," European Economy - Economic Papers 425, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  13. John Geanakoplos, 2009. "The Leverage Cycle," Cowles Foundation Discussion Papers 1715R, Cowles Foundation for Research in Economics, Yale University, revised Jan 2010.
  14. Javier Bianchi & Emine Boz & Enrique G. Mendoza, 2012. "Macro-Prudential Policy in a Fisherian model of Financial Innovation," NBER Working Papers 18036, National Bureau of Economic Research, Inc.
  15. Philip R. Lane & Barbara Pels, 2012. "Current Account Imbalances in Europe," The Institute for International Integration Studies Discussion Paper Series iiisdp397, IIIS.
  16. Klaus Adam & Pei Kuang & Albert Marcet, 2012. "House Price Booms and the Current Account," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 77 - 122.
  17. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2010. "The Cross-Country Incidence of the Global Crisis," CEPR Discussion Papers 7954, C.E.P.R. Discussion Papers.
  18. Victoria Ivashina & David S. Scharfstein & Jeremy C. Stein, 2012. "Dollar funding and the lending behavior of global banks," Finance and Economics Discussion Series 2012-74, Board of Governors of the Federal Reserve System (U.S.).
  19. Samuel Bazzi & Michael A. Clemens, 2013. "Blunt Instruments: Avoiding Common Pitfalls in Identifying the Causes of Economic Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 152-86, April.
  20. Jack Favilukis & David Kohn & Sydney C. Ludvigson & Stijn Van Nieuwerburgh, 2012. "International Capital Flows and House Prices: Theory and Evidence," NBER Working Papers 17751, National Bureau of Economic Research, Inc.
  21. Hume, Michael & Sentance, Andrew, 2009. "The global credit boom: challenges for macroeconomics and policy," Discussion Papers 27, Monetary Policy Committee Unit, Bank of England.
  22. Lanau, Sergi, 2011. "Domestic financial regulation and external borrowing," Bank of England working papers 429, Bank of England.
  23. Claudio Borio & Piti Disyatat, 2011. "Global imbalances and the financial crisis: Link or no link?," BIS Working Papers 346, Bank for International Settlements.
  24. Valentina Bruno & Hyun Song Shin, 2013. "Capital Flows, Cross-Border Banking and Global Liquidity," NBER Working Papers 19038, National Bureau of Economic Research, Inc.
  25. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global banks and international shock transmission: evidence from the crisis," Staff Reports 446, Federal Reserve Bank of New York.
  26. Boris Hofmann, 2001. "The determinants of private sector credit in industrialised countries: do property prices matter?," BIS Working Papers 108, Bank for International Settlements.
  27. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
  28. Jeremy C. Stein, 2012. "Monetary Policy as Financial Stability Regulation," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 57-95.
  29. John Geanakoplos, 2010. "The Leverage Cycle," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 1-65 National Bureau of Economic Research, Inc.
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Cited by:
  1. Philip R. Lane, 2013. "Cross-Border Financial Integration in Asia and the Macro-Financial Policy Framework," The Institute for International Integration Studies Discussion Paper Series iiisdp423, IIIS.
  2. Gozgor, Giray, 2014. "Determinants of domestic credit levels in emerging markets: The role of external factors," Emerging Markets Review, Elsevier, vol. 18(C), pages 1-18.

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