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International Contagion through Leveraged Financial Institutions

Listed author(s):
  • Eric van Wincoop

The 2008 –2009 financial crises, while originating in the United States, witnessed a drop in asset prices and output that was at least as large in the rest of the world. We investigate, in the context of a simple two-country model, whether this could have been the result of transmission through leveraged financial institutions. The paper highlights what the various transmission mechanisms associated with balance sheet losses are. For realistic parameters we find that the model cannot account for the global nature of the crisis, both in terms of the size of the impact and the extent of transmission.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.5.3.152
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File URL: http://www.aeaweb.org/aej/mac/data/2011-0224_data.zip
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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 5 (2013)
Issue (Month): 3 (July)
Pages: 152-189

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Handle: RePEc:aea:aejmac:v:5:y:2013:i:3:p:152-89
Note: DOI: 10.1257/mac.5.3.152
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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  1. Kozo Ueda, 2010. "Banking Globalization and International Business Cycles," IMES Discussion Paper Series 10-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
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  8. Michael B Devereux & James Yetman, 2010. "Financial deleveraging and the international transmission of shocks," BIS Papers chapters,in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 274-298 Bank for International Settlements.
  9. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
  10. Tobias Adrian & Hyun Song Shin, 2008. "Financial intermediary leverage and value at risk," Staff Reports 338, Federal Reserve Bank of New York.
  11. Daniel O. Beltran & Laurie Pounder Demarco & Charles P. Thomas, 2008. "Foreign exposure to asset-backed securities of U.S. origin," International Finance Discussion Papers 939, Board of Governors of the Federal Reserve System (U.S.).
  12. Luca Dedola & Giovanni Lombardo, 2012. "Financial frictions, financial integration and the international propagation of shocks," Economic Policy, CEPR;CES;MSH, vol. 27(70), pages 319-359, 04.
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