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Financial intermediation, resource allocation, and macroeconomic interdependence

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  • Ozhan, Galip Kemal

Abstract

During the first decade of the euro, southern countries experienced a boom-bust cycle in bank lending, non-tradable sector growth, and capital inflows. I develop a quantitative, open economy model of banking that is consistent with the banks’ behavior in credit allocation and foreign borrowing observed in Spanish data. I illustrate how movements in the frictions of cross-border deposits generate an endogenous asymmetric allocation of bank credit toward non-traded sectors, while producing a persistent and climbing current account deficit. A common central bank’s unconventional policies in response to sudden stops are successful at ameliorating the downturn.

Suggested Citation

  • Ozhan, Galip Kemal, 2020. "Financial intermediation, resource allocation, and macroeconomic interdependence," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 265-278.
  • Handle: RePEc:eee:moneco:v:115:y:2020:i:c:p:265-278
    DOI: 10.1016/j.jmoneco.2019.07.001
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    3. Ivan Jaccard & Frank Smets, 2020. "Structural Asymmetries and Financial Imbalances in the Eurozone," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 73-102, April.
    4. Ivan Jaccard & Frank Smets, 2020. "Structural Asymmetries and Financial Imbalances in the Eurozone," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 73-102, April.
    5. Ozhan, Galip Kemal, 2021. "News-driven international credit cycles," Journal of Macroeconomics, Elsevier, vol. 70(C).

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    More about this item

    Keywords

    Bank credit; Sectoral allocation; Deposits; Capital flows; Europe;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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