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Banks and International Business Cycles

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  • Robert Kollmann

    (ECARES, Universite Libre de Bruxelles, and CEPR)

Abstract

This paper incorporates banks into a multi-country dynamic stochastic general equilibrium model. There are saving banks and investment banks. Saving banks collect deposits from households and make loans to investment banks (via an inter-bank market); investment banks fund physical investment project. Both types of banks have to meet prudential capital requirements. The model accounts for key episodes during the current financial crisis. A negative shock to the value of physical capital induces a fall in bank lending, which magnifies considerably the effect of the shock on real activity. The model also explains key facts about international business cycles during 'normal' times better than conventional multi-country macro models--in particular, it allows to better explain the close correlation between US and European business cycles.

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File URL: http://www.economicdynamics.org/meetpapers/2010/paper_1058.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1058.

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Date of creation: 2010
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Handle: RePEc:red:sed010:1058

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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References

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  1. Nolan, Charles & Thoenissen, Christoph, 2008. "Financial shocks and the US business cycle," SIRE Discussion Papers 2008-58, Scottish Institute for Research in Economics (SIRE).
  2. Blum, Jurg & Hellwig, Martin, 1995. "The macroeconomic implications of capital adequacy requirements for banks," European Economic Review, Elsevier, vol. 39(3-4), pages 739-749, April.
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Cited by:
  1. Nikolay Hristov & Oliver Hülsewig & Timo Wollmershäuser, 2012. "The Interest Rate Pass-Through in the Euro Area During the Global Financial Crisis," CESifo Working Paper Series 3964, CESifo Group Munich.
  2. Adrian, Tobias & Etula, Erkko & Groen, Jan J.J., 2011. "Financial amplification of foreign exchange risk premia," European Economic Review, Elsevier, vol. 55(3), pages 354-370, April.
  3. Luca Guerrieri & Matteo Iacoviello & Raoul Minetti, 2012. "Banks, sovereign debt and the international transmission of business cycles," International Finance Discussion Papers 1067, Board of Governors of the Federal Reserve System (U.S.).
  4. Perri, Fabrizio & Quadrini, Vincenzo, 2011. "International Recessions," CEPR Discussion Papers 8483, C.E.P.R. Discussion Papers.
  5. Julien Bengui & Enrique G. Mendoza & Vincenzo Quadrini, 2012. "Capital Mobility and International Sharing of Cyclical Risk," NBER Working Papers 18372, National Bureau of Economic Research, Inc.
  6. Uluc Aysun & Sami Alpanda, 2012. "International Transmission of Financial Shocks in an Estimated DSGE model," Working Papers 2012-06, University of Central Florida, Department of Economics.

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