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Global banks, financial shocks and international business cycles: evidence from an estimated model

Listed author(s):
  • Kollmann, Robert

This paper estimates a two-country model with a global bank, using U.S. and Euro area (EA) data, and Bayesian methods. The estimated model matches key U.S. 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 U.S. real activity. During the Great Recession (2007–09), banking shocks accounted for about 20 percent of the fall in U.S. and EA GDP, and for more than half of the fall in EA investment and employment.

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File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0120.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 120.

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Length: 41 pages
Date of creation: 2012
Handle: RePEc:fip:feddgw:120
Note: Published as: Kollmann, Robert (2013), "Global Banks, Financial Shocks and International Business Cycles: Evidence from an Estimated Model," Journal of Money, Credit and Banking 45 (s2): 159-195.
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