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Financial intermediation and the international business cycle: The case of small countries with big banks

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  • Gunes Kamber
  • Christoph Thoenissen

Abstract

We examine the transmission mechanism of banking sector shocks in a two-country DSGE model. Assuming that the home country is small relative to the rest of world, we find that spillovers from foreign banking sector shocks are modest unless banks in the small country hold foreign banking assets. The correlation between home and foreign GDP rises with the exposure of the of the domestic banking sector to foreign bank assets.

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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 1108.

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Date of creation: 21 Jun 2011
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Handle: RePEc:san:cdmawp:1108

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  1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  2. Philip Lane, 2011. "The Irish Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp356, IIIS.
  3. Benk, Szilárd & Gillman, Max & Kejak, Michal, 2009. "A Banking Explanation of the US Velocity of Money: 1919-2004," CEPR Discussion Papers 7544, C.E.P.R. Discussion Papers.
  4. Olivero, María Pía, 2010. "Market power in banking, countercyclical margins and the international transmission of business cycles," Journal of International Economics, Elsevier, vol. 80(2), pages 292-301, March.
  5. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2009. "Investment Shocks and the Relative Price of Investment," CEPR Discussion Papers 7598, C.E.P.R. Discussion Papers.
  6. Marvin Goodfriend & Bennett T. McCallum, 2007. "Banking and interest rates in monetary policy analysis: a quantitative exploration," Proceedings, Federal Reserve Bank of San Francisco.
  7. Robert KOLLMANN, 2011. "Global Banking and International Business Cycles," 2011 Meeting Papers 20, Society for Economic Dynamics.
  8. Thoenissen, Christoph, 2011. "Exchange Rate Dynamics, Asset Market Structure, And The Role Of The Trade Elasticity," Macroeconomic Dynamics, Cambridge University Press, vol. 15(01), pages 119-143, February.
  9. Sutherland, Alan, 2005. "Incomplete pass-through and the welfare effects of exchange rate variability," Journal of International Economics, Elsevier, vol. 65(2), pages 375-399, March.
  10. Kelly, Morgan, 2010. "Whatever Happened to Ireland?," CEPR Discussion Papers 7811, C.E.P.R. Discussion Papers.
  11. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
  12. Gilchrist, Simon, 2007. "Comment on: Banking and interest rates in monetary policy analysis: A quantitative exploration," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1508-1514, July.
  13. Gertler, Mark & Kiyotaki, Nobuhiro, 2010. "Financial Intermediation and Credit Policy in Business Cycle Analysis," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 11, pages 547-599 Elsevier.
  14. Césaire Meh & Kevin Moran, 2008. "The Role of Bank Capital in the Propagation of Shocks," Working Papers 08-36, Bank of Canada.
  15. Charles Nolan & Christoph Thoenissen, 2008. " Financial shocks and the US business cycle," CDMA Working Paper Series 0810, Centre for Dynamic Macroeconomic Analysis.
  16. Parantap Basu & Christoph Thoenissen, 2011. "International business cycles and the relative price of investment goods," Canadian Journal of Economics, Canadian Economics Association, vol. 44(2), pages 580-606, May.
  17. repec:bla:restud:v:75:y:2008:i:2:p:443-473 is not listed on IDEAS
  18. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, 09.
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Cited by:
  1. Luca Guerrieri & Matteo Iacoviello & Raoul Minetti, 2012. "Banks, Sovereign Debt and the International Transmission of Business Cycles," NBER Chapters, in: NBER International Seminar on Macroeconomics 2012 National Bureau of Economic Research, Inc.
  2. Gustavo Adler, 2012. "Intertwined Sovereign and Bank Solvencies in a Model of Self-Fulfilling Crisis," IMF Working Papers 12/178, International Monetary Fund.
  3. Robert Kollmann, 2012. "Global banks, financial shocks and international business cycles: evidence from an estimated model," Globalization and Monetary Policy Institute Working Paper 120, Federal Reserve Bank of Dallas.

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