Banking Globalization and International Business Cycles
AbstractThis paper constructs a two-country DSGE model to study the nature of the recent financial crisis and its effects that spread immediately throughout the world owing to the globalization of banking. In the model, financial intermediaries (FIs) enter into chained credit contracts at home and abroad, engaging in cross-border lending to entrepreneurs by undertaking cross-border borrowing from investors. The FIs as well as the entrepreneurs in two countries are credit constrained, so all of their net worths matter. Our model reveals that under FIs' globalization, adverse shocks that hit one country affect the other, yielding business cycle synchronization on both the real and financial sides. It also suggests that the FIs' globalization, net worth shock, and credit constraints are key to understanding the recent financial crisis.
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Bibliographic InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 10-E-16.
Date of creation: Jul 2010
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Financial accelerator; financial intermediaries; correlation ( quantity) puzzle; business cycle synchronization; contagion; monetary policy;
Other versions of this item:
- Kozo Ueda, 2010. "Banking globalization and international business cycles," Globalization and Monetary Policy Institute Working Paper 58, Federal Reserve Bank of Dallas.
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-31 (All new papers)
- NEP-BAN-2010-07-31 (Banking)
- NEP-CBA-2010-07-31 (Central Banking)
- NEP-DGE-2010-07-31 (Dynamic General Equilibrium)
- NEP-MAC-2010-07-31 (Macroeconomics)
- NEP-OPM-2010-07-31 (Open Economy Macroeconomic)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Van den Heuvel, Skander J., 2008.
"The welfare cost of bank capital requirements,"
Journal of Monetary Economics,
Elsevier, vol. 55(2), pages 298-320, March.
- International Monetary Fund, 2000. "Spillovers Through Banking Centers - A Panel Data Analysis," IMF Working Papers 00/88, International Monetary Fund.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Banking globalization and international business cycles
by Christian Zimmermann in NEP-DGE blog on 2010-09-15 20:26:15
- Shigenori Shiratsuka & Wataru Takahashi & Yuki Teranishi & Kozo Ueda, 2010. "Future of Central Banking under Globalization: Summary of the 2010 International Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan by Shigenori Shiratsuka, W," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 1-16, November.
- Scott Davis, 2011. "Financial integration and international business cycle co-movement: the role of balance sheets," Globalization and Monetary Policy Institute Working Paper 89, Federal Reserve Bank of Dallas.
- Eric van Wincoop, 2011. "International Contagion Through Leveraged Financial Institutions," NBER Working Papers 17686, National Bureau of Economic Research, Inc.
- Lawrence Christiano & Daisuke Ikeda, 2011. "Government Policy, Credit Markets and Economic Activity," NBER Working Papers 17142, National Bureau of Economic Research, Inc.
- Scott Davis, 2010. "The adverse feedback loop and the effects of risk in both the real and financial sectors," Globalization and Monetary Policy Institute Working Paper 66, Federal Reserve Bank of Dallas.
- Shigenori Shiratsuka & Wataru Takahashi & Yuki Teranishi & Kozo Ueda, 2010. "Future of Central Banking under Globalization: Summary of the 2010 International Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan," IMES Discussion Paper Series 10-E-21, Institute for Monetary and Economic Studies, Bank of Japan.
- Ueda, Kozo, 2012. "Banking globalization and international business cycles: Cross-border chained credit contracts and financial accelerators," Journal of International Economics, Elsevier, vol. 86(1), pages 1-16.
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