IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Global Banks and Crisis Transmission

  • Kalemli-Ozcan, Sebnem
  • Papaioannou, Elias
  • Perri, Fabrizio

We study the effect of financial integration on the transmission of international business cycles. In a sample of 20 developed countries between 1978 and 2009 we find that, in periods without financial crises, increases in bilateral financial linkages are associated with more divergent output cycles. This relation is significantly weaker during financial turmoil periods, suggesting that financial crises induce co-movement among more financially integrated countries. We also show that countries with stronger, direct and indirect, financial ties to the U.S. experienced more synchronized cycles with the U.S. during the recent 2007-2009 crisis. We then interpret these findings using a simple general equilibrium model of international business cycles with banks and shocks to banking activity. The model suggests that the change in the relation between integration and synchronization can be driven by changes in the nature of shocks hitting the world economy, and that shocks to global banks played an important role in triggering and spreading the 2007-2009 crisis.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9044
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9044.

as
in new window

Length:
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:cpr:ceprdp:9044
Contact details of provider: Postal:
Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.

Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Canova, Fabio, 1999. "Does Detrending Matter for the Determination of the Reference Cycle and the Selection of Turning Points?," Economic Journal, Royal Economic Society, vol. 109(452), pages 126-50, January.
  2. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2002. "Two Hundred Years of Contagion," MPRA Paper 13229, University Library of Munich, Germany.
  3. Luca Dedola & Giovanni Lombardo, 2012. "Financial frictions, financial integration and the international propagation of shocks," Economic Policy, CEPR;CES;MSH, vol. 27(70), pages 319-359, 04.
  4. Reinhart, Carmen & Reinhart, Vincent, 2008. "Is the US too big to fail?," MPRA Paper 12976, University Library of Munich, Germany.
  5. Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, vol. 51(1), pages 79-113, June.
  6. Jonathan Heathcote & Fabrizio Perri, 2001. "Financial Globalization and Real Regionalization," Working Papers 01-11, New York University, Leonard N. Stern School of Business, Department of Economics.
  7. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010. "Financial regulation, financial globalization and the synchronization of economic activity," Working Paper Series 1221, European Central Bank.
  8. ., 2008. "Can Regulatory Ritualism be Transcended?," Chapters, in: Regulatory Capitalism, chapter 6 Edward Elgar Publishing.
  9. ., 2008. "Is Regulatory Capitalism a Good Thing?," Chapters, in: Regulatory Capitalism, chapter 8 Edward Elgar Publishing.
  10. Reinhart, Carmen M. & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
  11. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2009. "Cultural Biases in Economic Exchange?," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 1095-1131.
  12. ., 2008. "Defence, Disarmament and Conflict," Chapters, in: Microeconomic Policy, chapter 17 Edward Elgar Publishing.
  13. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
  14. ., 2008. "The Method of Analysis," Chapters, in: Law, Informal Rules and Economic Performance, chapter 10 Edward Elgar Publishing.
  15. Devereux, Michael B., 2010. "Leverage constraints and the international transmission of shocks," Globalization and Monetary Policy Institute Working Paper 45, Federal Reserve Bank of Dallas.
  16. Domenico Giannone & Lucrezia Reichlin, 2008. "Did the Euro imply more correlation of cycles?," ULB Institutional Repository 2013/13394, ULB -- Universite Libre de Bruxelles.
  17. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
  18. Kindleberger,, 2008. "Financial Crises," Cambridge Books, Cambridge University Press, number 9780521068710, November.
  19. Reinhart, Carmen, 2008. "The Next (but not new) Frontier for Sovereign Default," MPRA Paper 11865, University Library of Munich, Germany.
  20. KRISHNAMURTY, Arvind, 2010. "How Debt Markets Have Malfunctioned in the Crisis," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 105-130.
  21. Olivero, María Pía, 2010. "Market power in banking, countercyclical margins and the international transmission of business cycles," Journal of International Economics, Elsevier, vol. 80(2), pages 292-301, March.
  22. Markus K. Brunnermeier & Thomas M. Eisenbach & Yuliy Sannikov, 2012. "Macroeconomics with Financial Frictions: A Survey," NBER Working Papers 18102, National Bureau of Economic Research, Inc.
  23. Andrew K. Rose & Mark M. Spiegel, 2002. "A Gravity Model of Sovereign Lending: Trade, Default and Credit," NBER Working Papers 9285, National Bureau of Economic Research, Inc.
  24. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 1999. "Risk Sharing and Industrial Specialization: Regional and International Evidence," JCPR Working Papers 86, Northwestern University/University of Chicago Joint Center for Poverty Research.
  25. Buch, Claudia M. & Carstensen, Kai & Schertler, Andrea, 2010. "Macroeconomic shocks and banks’ foreign assets," Munich Reprints in Economics 19988, University of Munich, Department of Economics.
  26. Morgan, Donald & Rime, Bertrand & Strahan, Philip E., 2004. "Bank Integration and State Business Cycles," SIFR Research Report Series 30, Institute for Financial Research.
  27. ., 2008. "From the Middle Ages to Capitalism," Chapters, in: Law, Informal Rules and Economic Performance, chapter 3 Edward Elgar Publishing.
  28. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
  29. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking and the international policy response," BIS Working Papers 291, Bank for International Settlements.
  30. Glenn Otto & Graham Voss & Luke Willard, 2001. "Understanding OECD Output Correlations," RBA Research Discussion Papers rdp2001-05, Reserve Bank of Australia.
  31. Bekaert, Geert & Ehrmann, Michael & Fratzscher, Marcel & Mehl, Arnaud, 2011. "Global crises and equity market contagion," CEPR Discussion Papers 8438, C.E.P.R. Discussion Papers.
  32. Reinhart, Carmen & Kaminsky, Graciela, 1998. "On crises, contagion, and confusion," MPRA Paper 13709, University Library of Munich, Germany.
  33. Vincenzo Quadrini & Fabrizio Perri, 2011. "International Recessions," 2011 Meeting Papers 123, Society for Economic Dynamics.
  34. Hans Degryse & Muhammad Ather Elahi & Maria Fabiana Penas, 2010. "Cross-Border Exposures and Financial Contagion," International Review of Finance, International Review of Finance Ltd., vol. 10(Financial), pages 209-240.
  35. Robert KOLLMANN, 2011. "Global Banking and International Business Cycles," 2011 Meeting Papers 20, Society for Economic Dynamics.
  36. Baxter, Marianne & Crucini, Mario J, 1995. "Business Cycles and the Asset Structure of Foreign Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 821-54, November.
  37. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises; The Good, the Bad, and the Ugly," IMF Working Papers 10/146, International Monetary Fund.
  38. Holmström, Bengt & Tirole, Jean, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," IDEI Working Papers 40, Institut d'Économie Industrielle (IDEI), Toulouse.
  39. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2010. "The Cross-Country Incidence of the Global Crisis," CEPR Discussion Papers 7954, C.E.P.R. Discussion Papers.
  40. Philip Lane & Gian Maria Milesi-Ferretti, 2010. "Cross-Border Investment in Small International Financial Centers," The Institute for International Integration Studies Discussion Paper Series iiisdp316, IIIS.
  41. Jain Mukesh & Sridharan R, . "Telecommunications: Some Social Issues," IIMA Working Papers WP1989-06-01_00880, Indian Institute of Management Ahmedabad, Research and Publication Department.
  42. Heathcote, Jonathan & Perri, Fabrizio, 1999. "Financial Autarky and International Business Cycles," SSE/EFI Working Paper Series in Economics and Finance 320, Stockholm School of Economics, revised 30 Apr 2000.
  43. Philip R. Lane & Gian M Milesi-Ferretti, 2004. "International Investment Patterns," IMF Working Papers 04/134, International Monetary Fund.
  44. Reinhart, Carmen M. & Rogoff, Kenneth, 2009. "Banking Crises: An Equal Opportunity Menace," CEPR Discussion Papers 7131, C.E.P.R. Discussion Papers.
  45. Arvind Krishnamurthy, 2010. "How Debt Markets Have Malfunctioned in the Crisis," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 3-28, Winter.
  46. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis.
  47. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
  48. Viral V. Acharya & Philipp Schnabl, 2010. "Do Global Banks Spread Global Imbalances? The Case of Asset-Backed Commercial Paper During the Financial Crisis of 2007-09," NBER Working Papers 16079, National Bureau of Economic Research, Inc.
  49. Mehmet Fatih Ekinci & Şebnem Kalemli-Özcan & Bent E. Sørensen, 2009. "Financial Integration within EU Countries: The Role of Institutions, Confidence and Trust," NBER Chapters, in: NBER International Seminar on Macroeconomics 2007, pages 325-391 National Bureau of Economic Research, Inc.
  50. Casey Mulligan, 2009. "What Caused the Recession of 2008? Hints from Labor Productivity," NBER Working Papers 14729, National Bureau of Economic Research, Inc.
  51. Richard Portes & Hélène Rey, 2001. "The Determinants of Cross-Border Equity Flows," DELTA Working Papers 2001-08, DELTA (Ecole normale supérieure).
  52. Anitha V, 2008. "Personality Traits and Administrators," Working Papers 192, Institute for Social and Economic Change, Bangalore.
  53. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  54. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global banks and international shock transmission: evidence from the crisis," Staff Reports 446, Federal Reserve Bank of New York.
  55. ., 2008. "The Interaction Thesis," Chapters, in: Law, Informal Rules and Economic Performance, chapter 11 Edward Elgar Publishing.
  56. Maurice Obstfeld, 1992. "Risk-taking, global diversification, and growth," Discussion Paper / Institute for Empirical Macroeconomics 61, Federal Reserve Bank of Minneapolis.
  57. ., 2008. "Capitalism and the Rule of Law," Chapters, in: Law, Informal Rules and Economic Performance, chapter 4 Edward Elgar Publishing.
  58. Fedesarrollo, 2008. "Revaluación: ¿Qué alternativas existen?," COYUNTURA ECONÓMICA, FEDESARROLLO, June.
  59. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, number 8973, 01-2013.
  60. Alicia García-Herrero & Juan M. Ruiz, 2008. "Do trade and financial linkages foster business cycle synchronization in a small economy?," Working Papers 0810, Banco de España;Working Papers Homepage.
  61. -, 2008. "What do the Results of PISA research show?," Educational Studies, Higher School of Economics, issue 1, pages 190-216.
  62. Thomas Helbling & Ayhan Kose & Christopher Otrok & Raju Huidrom, 2010. "Do Credit Shocks Matter? A Global Perspective," IMF Working Papers 10/261, International Monetary Fund.
  63. Robert Inklaar & Richard Jong-A-Pin & Jakob de Haan, 2005. "Trade and Business Cycle Synchronization in OECD Countries - a Re-examination," CESifo Working Paper Series 1546, CESifo Group Munich.
  64. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010. "What lies beneath the euro's effect on financial integration? Currency risk, legal harmonization, or trade?," Journal of International Economics, Elsevier, vol. 81(1), pages 75-88, May.
  65. ., 2008. "Capitalism, Economic Freedom and Performance," Chapters, in: Law, Informal Rules and Economic Performance, chapter 8 Edward Elgar Publishing.
  66. ., 2008. "Neoliberalism or Regulatory Capitalism?," Chapters, in: Regulatory Capitalism, chapter 1 Edward Elgar Publishing.
  67. Jean Imbs, 2010. "The First Global Recession in Decades," IMF Economic Review, Palgrave Macmillan, vol. 58(2), pages 327-354, December.
  68. Pavlova, Anna & Rigobon, Roberto, 2011. "International Macro-Finance," CEPR Discussion Papers 8218, C.E.P.R. Discussion Papers.
  69. Mendoza, Enrique G. & Quadrini, Vincenzo, 2010. "Financial globalization, financial crises and contagion," Journal of Monetary Economics, Elsevier, vol. 57(1), pages 24-39, January.
  70. ., 2008. "The Rule of Law and Capitalism: An Overview," Chapters, in: Law, Informal Rules and Economic Performance, chapter 9 Edward Elgar Publishing.
  71. AndrewK. Rose & MarkM. Spiegel, 2010. "Cross-Country Causes And Consequences Of The 2008 Crisis: International Linkages And American Exposure," Pacific Economic Review, Wiley Blackwell, vol. 15(3), pages 340-363, 08.
  72. AfDB AfDB, . "The AfDB Statistics Pocketbook 2008," AfDB Statistics Pocketbook, African Development Bank, number 3 edited by Koua Louis Kouakou, 9.
  73. Arbache, Jorge & Go, Delfin S. & Page, John, 2008. "Is Africa's economy at a turning point?," Policy Research Working Paper Series 4519, The World Bank.
  74. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
  75. AfDB AfDB, 2008. "List of Working Paper Series (1 - 95)," Working Paper Series 356, African Development Bank.
  76. John Hart, 2008. "Terence Hutchison (1912-2007)," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 16(3), pages 9-15.
  77. Milesi-Ferretti, Gian Maria & Strobbe, Francesco & Tamirisa, Natalia, 2010. "Bilateral Financial Linkages and Global Imbalances: A View on The Eve of the Financial Crisis," CEPR Discussion Papers 8173, C.E.P.R. Discussion Papers.
  78. Robert Kollmann, 2010. "Banks and International Business Cycles," 2010 Meeting Papers 1058, Society for Economic Dynamics.
  79. Douglas W. Diamond & Raghuram Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," NBER Working Papers 14739, National Bureau of Economic Research, Inc.
  80. Papaioannou, Elias, 2008. "What Drives International Financial Flows? Politics, Institutions and Other Determinants," CEPR Discussion Papers 7010, C.E.P.R. Discussion Papers.
  81. Jean Imbs, 2006. "The Real Effects of Financial Integration," Post-Print hal-00612566, HAL.
  82. Donald P. Morgan & Bertrand Rime & Philip E. Strahan, 2004. "Bank Integration and State Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1555-1584.
  83. Kubelec, Chris & Sa, Filipa, 2010. "The geographical composition of national external balance sheets: 1980-2005," Bank of England working papers 384, Bank of England.
  84. Patrick J. Kehoe & Fabrizio Perri, 2000. "International business cycles with endogenous incomplete markets," Staff Report 265, Federal Reserve Bank of Minneapolis.
  85. Devereux, Michael B. & Sutherland, Alan, 2011. "Evaluating international financial integration under leverage constraints," European Economic Review, Elsevier, vol. 55(3), pages 427-442, April.
  86. Roberto Rigobón & Kristin Forbes, 2001. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 1-46, January.
  87. ., 2008. "Ownership of Enterprises: Public or Private?," Chapters, in: Microeconomic Policy, chapter 10 Edward Elgar Publishing.
  88. Arun Kumar, 2008. "Who is Worried about the National Interest?," Working Papers id:1561, eSocialSciences.
  89. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 1999. "Industrial specialization and the asymmetry of shocks across regions," Research Working Paper 99-06, Federal Reserve Bank of Kansas City.
  90. Marianne Baxter & Michael A. Kouparitsas, 2004. "Determinants of business cycle comovement: a robust analysis," Working Paper Series WP-04-14, Federal Reserve Bank of Chicago.
  91. -, 2008. "Revista de la CEPAL no.94," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
  92. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 2008. "Facts and myths about the financial crisis of 2008," Working Papers 666, Federal Reserve Bank of Minneapolis.
  93. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
  94. Chudik, Alexander & Fratzscher, Marcel, 2011. "Identifying the global transmission of the 2007-09 financial crisis in a GVAR Model," Working Paper Series 1285, European Central Bank.
  95. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects, the monetary transmission mechanism, and monetary policy," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-14.
  96. -, 2008. "Revista de la CEPAL no.95," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
  97. Brian M. Doyle & Jon Faust, 2003. "Breaks in the variability and co-movement of G-7 economic growth," International Finance Discussion Papers 786, Board of Governors of the Federal Reserve System (U.S.).
  98. Van Rijckeghem, Caroline & Weder, Beatrice, 2003. "Spillovers through banking centers: a panel data analysis of bank flows," Journal of International Money and Finance, Elsevier, vol. 22(4), pages 483-509, August.
  99. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
  100. -, 2008. "Revista de la CEPAL no.96," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
  101. Chudik, Alexander & Fratzscher, Marcel, 2011. "Identifying the global transmission of the 2007-2009 financial crisis in a GVAR model," European Economic Review, Elsevier, vol. 55(3), pages 325-339, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:9044. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.