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Financial exposure and the international transmission of financial shocks

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This paper analyzes the transmission mechanism of banking sector shocks in an international real business cycle model with heterogeneous bank sizes. We examine to what extent the financial exposure of the banking sector affects the transmission of foreign banking sector shocks. In our model, the more exposed domestic banks are to the foreign economy via lending to foreign firms, the greater are the spillovers from foreign financial shocks to the home economy. The model highlights the role of openness to trade and the dynamics of the terms of trade in the international transmission mechanism of banking sector shocks Spillovers from foreign banking sector shocks are greater the more open the home economy is to trade and the less the terms of trade respond to foreign shocks.

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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2013/06.

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Length: 43 p.
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:nzb:nzbdps:2013/06

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Citations

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Cited by:
  1. Mara Pirovano, 2013. "Household and firm leverage, capital flows and monetary policy in a small open economy," Working Paper Research, National Bank of Belgium 246, National Bank of Belgium.
  2. Robert Kollmann, 2013. "Global Banks, Financial Shocks And International Business Cycles: Evidence From An Estimated Model," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2013-30, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Gustavo Adler, 2012. "Intertwined Sovereign and Bank Solvencies in a Model of Self-Fulfilling Crisis," IMF Working Papers, International Monetary Fund 12/178, International Monetary Fund.
  4. Luca Guerrieri & Matteo Iacoviello & Raoul Minetti, 2012. "Banks, sovereign debt and the international transmission of business cycles," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1067, Board of Governors of the Federal Reserve System (U.S.).
  5. PIROVANO, Mara, 2013. "International financial integration, credit frictions and exchange rate regimes," Working Papers, University of Antwerp, Faculty of Applied Economics 2013015, University of Antwerp, Faculty of Applied Economics.

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