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International Bank Portfolios: Short- and Long-Run Responses to the Business Cycle

  • Sven Blank
  • Claudia M. Buch

International bank portfolios constitute a large component of international country portfolios. Yet, their response to macroeconomic conditions and their impact on the international transmission of business cycles developments remains largely unexplored. We use a novel dataset on banks’ international portfolios to answer three questions. First, what are the long-run determinants of banks’ international portfolios? Second, how do banks’ international portfolios adjust to short-run macroeconomic developments? Third, does the speed of adjustment change with the degree of financial integration? We provide evidence of significant long-run cointegration relationships between cross-border assets and liabilities of banks and key macroeconomic variables. Both, the long-run determinants of banks’ international portfolios as well as the short-run dynamics show a significant degree of heterogeneity across countries and, to some extent, over time. Gravitytype variables help explaining differences in the speed of adjustment to new equilibria.

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File URL: http://www.iaw.edu/RePEc/iaw/pdf/iaw_dp_29.pdf
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Paper provided by Institut für Angewandte Wirtschaftsforschung (IAW) in its series IAW Discussion Papers with number 29.

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Length: 56 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:iaw:iawdip:29
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