IDEAS home Printed from https://ideas.repec.org/a/aea/apandp/v110y2020p504-10.html
   My bibliography  Save this article

The Financial Center Leverage Cycle: Does It Spread around the World?

Author

Listed:
  • Graciela Laura Kaminsky
  • Leandro Medina
  • Shiyi Wang

Abstract

With a novel database, we examine the evolution of capital flows since the collapse of the Bretton Woods system in the early 1970s. We decompose capital flows into global, regional, and idiosyncratic factors. In contrast to previous findings, which mostly use data from the 2000s, we find that booms and busts in capital flows are mainly explained by regional factors and not the global factor. We link leverage in the financial center to regional capital flows and the cost of borrowing in international capital markets to examine the drivers of capital flow bonanzas and busts.

Suggested Citation

  • Graciela Laura Kaminsky & Leandro Medina & Shiyi Wang, 2020. "The Financial Center Leverage Cycle: Does It Spread around the World?," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 504-510, May.
  • Handle: RePEc:aea:apandp:v:110:y:2020:p:504-10
    DOI: 10.1257/pandp.20201009
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/pandp.20201009
    Download Restriction: no

    File URL: https://www.aeaweb.org/doi/10.1257/pandp.20201009.ds
    Download Restriction: no

    File URL: https://doi.org/10.3886/E119502V1
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Graciela L. Kaminsky, 2019. "Boom-Bust Capital Flow Cycles," NBER Working Papers 25890, National Bureau of Economic Research, Inc.
    2. Boehmer, Ekkehart & Megginson, William L, 1990. "Determinants of Secondary Market Prices for Developing Country Syndicated Loans," Journal of Finance, American Finance Association, vol. 45(5), pages 1517-1540, December.
    3. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.
    4. Bruno, Valentina & Shin, Hyun Song, 2015. "Capital flows and the risk-taking channel of monetary policy," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 119-132.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shiyi Wang, 2019. "Capital Flow Volatility: The Effects of Financial Development and Global Financial Conditions," 2019 Papers pwa945, Job Market Papers.
    2. Albrizio, Silvia & Choi, Sangyup & Furceri, Davide & Yoon, Chansik, 2020. "International bank lending channel of monetary policy," Journal of International Money and Finance, Elsevier, vol. 102(C).
    3. Ouyang, Alice Y. & Guo, Shen, 2019. "Macro-prudential policies, the global financial cycle and the real exchange rate," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 147-167.
    4. Luca Metelli & Kevin Pallara, 2020. "Fiscal space and the size of the fiscal multiplier," Temi di discussione (Economic working papers) 1293, Bank of Italy, Economic Research and International Relations Area.
    5. Fernando Broner & Daragh Clancy & Alberto Martin & Aitor Erce, 2017. "Fiscal multipliers and foreign holdings of public debt," Economics Working Papers 1610, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2018.
    6. Victor Echevarria Icaza & Simón Sosvilla-Rivero, 2017. "Yields on sovereign debt, fragmentation and monetary policy transmission in the euro area: A GVAR approach," Working Papers 17-01, Asociación Española de Economía y Finanzas Internacionales.
    7. Hyeongwoo Kim, 2018. "Fiscal Policy, Wages, and Jobs in the U.S," Auburn Economics Working Paper Series auwp2018-02, Department of Economics, Auburn University.
    8. Rüth, Sebastian K., 2018. "Fiscal stimulus and systematic monetary policy: Postwar evidence for the United States," Economics Letters, Elsevier, vol. 173(C), pages 92-96.
    9. Ernest Dautovic, 2019. "Has Regulatory Capital Made Banks Safer? Skin in the Game vs Moral Hazard," Cahiers de Recherches Economiques du Département d'économie 19.03, Université de Lausanne, Faculté des HEC, Département d’économie.
    10. Klein, Mathias & Linnemann, Ludger, 2020. "The time-varying effect of fiscal policy on inflation: Evidence from historical US data," Economics Letters, Elsevier, vol. 186(C).
    11. Dong Kim, 2012. "What is an oil shock? Panel data evidence," Empirical Economics, Springer, vol. 43(1), pages 121-143, August.
    12. Prabheesh, K.P. & Anglingkusumo, Reza & Juhro, Solikin M., 2021. "The dynamics of global financial cycle and domestic economic cycles: Evidence from India and Indonesia," Economic Modelling, Elsevier, vol. 94(C), pages 831-842.
    13. Valentina Bruno & Hyun Song Shin, 2017. "Global Dollar Credit and Carry Trades: A Firm-Level Analysis," Review of Financial Studies, Society for Financial Studies, vol. 30(3), pages 703-749.
    14. Joshua Aizenman & Hiro Ito & Gurnain Kaur Pasricha, 2021. "Central Bank Swap Arrangements in the COVID-19 Crisis," NBER Working Papers 28585, National Bureau of Economic Research, Inc.
    15. Chen, Minghua & Wu, Ji & Jeon, Bang Nam & Wang, Rui, 2017. "Do foreign banks take more risk? Evidence from emerging economies," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 20-39.
    16. Richhild Moessner, 2014. "Effects of explicit FOMC policy-rate guidance on equities and risk measures," Applied Economics, Taylor & Francis Journals, vol. 46(18), pages 2139-2153, June.
    17. Eugenio Cerutti & Stijn Claessens & Andrew K. Rose, 2019. "How Important is the Global Financial Cycle? Evidence from Capital Flows," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(1), pages 24-60, March.
    18. Bruno Albuquerque, 2019. "One Size Fits All? Monetary Policy and Asymmetric Household Debt Cycles in U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(5), pages 1309-1353, August.
    19. Hargaden, Enda Patrick, 2020. "Taxpayer responses in good times and bad," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 653-690.
    20. Christian Bredemeier & Falko Juessen & Andreas Schabert, 2015. "Fiscal policy, interest rate spreads,and the zero lower bound," Working Paper Series in Economics 80, University of Cologne, Department of Economics.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:apandp:v:110:y:2020:p:504-10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael P. Albert). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.