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Financial intermediation and the internationalbusiness cycle: The case of small countries with big banks

  • Gunes Kamber


  • Christoph Thoenissen


We examine the transmission mechanism of banking sector shocks in a two-country DSGE model. Assuming that the home country is small relative to the rest of world, we find that spillovers from foreign banking sector shocks are modest unless banks in the small country hold foreign banking assets. The correlation between home and foreign GDP rises with the exposure of the domestic banking sector to foreign bank assets.

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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2011-22.

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Length: 32 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:een:camaaa:2011-22
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