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International Spillovers and Local Credit Cycles

Listed author(s):
  • Yusuf Soner Baskaya
  • Julian di Giovanni
  • Sebnem Kalemli-Özcan
  • Mehmet Fatih Ulu

We show that capital inflows are important drivers of domestic credit cycles using a firm-bank-loan level dataset for a representative emerging market. Instrumenting inflows by changes in global risk appetite (VIX), we find that a fall in VIX leads to a large decline in real borrowing rates and an expansion in credit supply. Estimates explain 40% of observed cyclical corporate credit growth. The OLS-elasticity of interest rates vis-à-vis capital inflows is smaller than the IV-elasticity. Banks with higher non- core funding offer relatively lower rates to low net worth firms, but do not extend more credit to them given collateral constraints.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 953.

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Date of creation: Feb 2017
Handle: RePEc:bge:wpaper:953
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  2. Frankel, Jeffrey & Poonawala, Jumana, 2010. "The forward market in emerging currencies: Less biased than in major currencies," Journal of International Money and Finance, Elsevier, vol. 29(3), pages 585-598, April.
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