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Macroeconomic Shocks and Foreign Bank Assets

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  • Claudia M. Buch
  • Kai Carstensen
  • Andrea Schertler

Abstract

Changes in foreign asset holdings are one channel through which agents adjust to macroeconomic shocks. In this paper, we test whether foreign bank assets change as a result of domestic and foreign macroeconomic shocks. We frame our empirical analysis in a standard new open economy macro model in which financial markets are imperfectly integrated. We test the implications of this model using dynamic panel models for changes in foreign bank assets. We find evidence that nominal interest rate differentials and inflation differentials drive changes in foreign bank assets permanently, while growth rate differentials and exchange rates have only a temporary effect.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1254.

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Length: 40 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:kie:kieliw:1254

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Keywords: international banking; macroeconomic shocks;

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References

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  1. Matteo Iacoviello & Raoul Minetti, 2003. "Domestic and Foreign Lenders and International Business Cycles," Boston College Working Papers in Economics 554, Boston College Department of Economics, revised 05 Dec 2003.
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Cited by:
  1. Ivanka Petkova, 2009. "Attempts of the European Union to Conteina the Financial Crisis," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 119-135.

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