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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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File URL: https://cama.crawford.anu.edu.au/pdf/working-papers/2013/302013.pdf
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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 2013-30.

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Length: 21 pages
Date of creation: May 2013
Handle: RePEc:een:camaaa:2013-30
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  40. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g7084aa4m is not listed on IDEAS
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