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International Evidence on the Interaction between Cross-Border Capital Flows and Domestic Credit Growth

Author

Listed:
  • Yavuz ARSLAN

    (TCMB)

  • Temel TAŞKIN

    (TCMB)

Abstract

The extent of interaction between international capital flows and macro-financial stability is an important and unsettled topic of debate. We contribute to this discussion by providing empirical evidence on the relationship between capital flows and domestic credit growth using a large cross-country panel dataset which includes both developed and developing economies. In the benchmark regression, we use a fixed effect model, and find a statistically significant and positive co-movement between the two variables, which is consistent with common wisdom and recent theory a la Bruno and Shin (2014). This empirical regularity is more pronounced in upper-middle income countries in comparison with the lower-middle and high income countries. The main results are robust to other econometric specifications and a variety of alternative measures for credit growth and capital flows.

Suggested Citation

  • Yavuz ARSLAN & Temel TAŞKIN, 2014. "International Evidence on the Interaction between Cross-Border Capital Flows and Domestic Credit Growth," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 29(341), pages 37-56.
    • Handle: RePEc:iif:iifjrn:v:29:y:2014:i:341:p:37-56
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    Cited by:

    1. Gokhan Sahin Gunes & Sumru Oz, 2016. "Response of Turkish Financial Markets to Negative Interest Rate Announcements of the ECB," Koç University-TUSIAD Economic Research Forum Working Papers 1614, Koc University-TUSIAD Economic Research Forum.
    2. Kose, M. Ayhan & Arteta, Carlos & Stocker, Marc & Taskin, Temel, 2016. "Negative Interest Rate Policies: Sources and Implications," CEPR Discussion Papers 11433, C.E.P.R. Discussion Papers.
    3. repec:bla:pacecr:v:23:y:2018:i:1:p:8-26 is not listed on IDEAS

    More about this item

    Keywords

    Cross-Border Capital Flows; Domestic Credit Growth; Macro-Financial Stability; Cross-Country Evidence;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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