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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
Date of revision:
Handle: RePEc:een:camaaa:2013-30
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  1. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld, 2012. "Fiscal policy, banks and the financial crisis," Working Paper Research 234, National Bank of Belgium.
  2. Gunes Kamber & Christoph Thoenissen, 2013. "Financial exposure and the international transmission of financial shocks," CAMA Working Papers 2013-39, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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  8. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through," Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden).
  9. Gregory deWalque & Olivier Pierrard & Abdelaziz Rouabah, 2010. "Financial (In)Stability, Supervision and Liquidity Injections: A Dynamic General Equilibrium Approach," Economic Journal, Royal Economic Society, vol. 120(549), pages 1234-1261, December.
  10. Coeurdacier, Nicolas & Kollmann, Robert & Martin, Philippe, 2010. "International portfolios, capital accumulation and foreign assets dynamics," Journal of International Economics, Elsevier, vol. 80(1), pages 100-112, January.
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  12. Geweke, John, 2001. "Bayesian econometrics and forecasting," Journal of Econometrics, Elsevier, vol. 100(1), pages 11-15, January.
  13. Robert Kollmann & Zeno Enders & Gernot J. Müller, 2010. "Global Banking and International Business Cycles," Working Papers ECARES ECARES 2010-028, ULB -- Universite Libre de Bruxelles.
  14. Vicente Tuesta & Pau Rabanal, 2006. "Euro-Dollar Real Exchange Rate Dynamics in an Estimated Two-Country Model; What is Important and What is Not," IMF Working Papers 06/177, International Monetary Fund.
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  28. John Geweke, 1998. "Using simulation methods for Bayesian econometric models: inference, development, and communication," Staff Report 249, Federal Reserve Bank of Minneapolis.
  29. repec:dgr:kubcen:200958 is not listed on IDEAS
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