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Global Banks, Financial Shocks, and International Business Cycles: Evidence from an Estimated Model

  • ROBERT KOLLMANN

This paper estimates a two-country model with a global bank, using US and Euro Area (EA) data, and Bayesian methods. The estimated model matches key US and EA business cycle statistics. Empirically, a model version with a bank capital requirement outperforms a structure without such a constraint. A loan loss originating in one country triggers a global output reduction. Banking shocks matter more for EA macro variables than for US real activity. Banking shocks account for about 3%-5% of the unconditional variance of US GDP and for 4%-14% of the variance of EA GDP. During the Great Recession (2007-09), banking shocks accounted for about 12%-20% of the fall in US and EA GDP, and for more than a third of the fall in EA investment and employment.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 45 (2013)
Issue (Month): s2 (December)
Pages: 159-195

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Handle: RePEc:mcb:jmoncb:v:45:y:2013:i:s2:p:159-195
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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