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International Spillovers and Local Credit Cycles

Author

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

Abstract

Most capital inflows are intermediated by domestic banks. We use transaction-level data on bank credit to estimate the causal impact of capital inflows on lending. The key mechanism is a failure of UIP, where capital inflows due to increases in global risk-appetite lead domestic banks to lower borrowing rates. Our estimates explain 43% of observed credit growth, where bank heterogeneity is critical for the aggregate impact. Foreign banks, exchange-rate driven balance-sheet shocks, and the relaxation of firm-level collateral constraints cannot account for our large estimates. Textbook- models, where UIP holds and capital flows are endogenous to demand cannot explain our findings.

Suggested Citation

  • Yusuf Soner Baskaya & Julian di Giovanni & Sebnem Kalemli-Özcan & Mehmet Fatih Ulu, 2017. "International Spillovers and Local Credit Cycles," Working Papers 953, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:953
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    References listed on IDEAS

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    Cited by:

    1. Baskaya, Yusuf Soner & di Giovanni, Julian & Kalemli-Özcan, Şebnem & Peydro, José-Luis & Ulu, Mehmet Fatih, 2017. "Capital flows and the international credit channel," Journal of International Economics, Elsevier, vol. 108(S1), pages 15-22.
    2. Eugenio Cerutti & Stijn Claessens & Andrew K Rose, 2017. "How important is the Global Financial Cycle? Evidence from capital flows," BIS Working Papers 661, Bank for International Settlements.
    3. Ambrogio Cesa-Bianchi & Andrea Ferrero & Alessandro Rebucci, 2017. "International Credit Supply Shocks," NBER Chapters,in: NBER International Seminar on Macroeconomics 2017 National Bureau of Economic Research, Inc.
    4. Gita Gopinath & Jeremy C. Stein, 2018. "Banking, Trade, and the making of a Dominant Currency," NBER Working Papers 24485, National Bureau of Economic Research, Inc.
    5. Bräuning, Falk & Ivashina, Victoria, 2017. "U. S. monetary policy and emerging market credit cycles," Working Papers 17-9, Federal Reserve Bank of Boston.
    6. Jeffrey A. Frankel, 2017. "Systematic Managed Floating," NBER Working Papers 23663, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Capital flows; VIX; risk premium; bank credit; firm heterogeneity;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F0 - International Economics - - General
    • F1 - International Economics - - Trade

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