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Foreign Currency Bank Funding and Global Factors

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  • Signe Krogstrup
  • Cédric Tille

Abstract

The literature on the drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood. We revisit this question by focusing on financial intermediaries’ funding flows in different currencies. A concise portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary’s pre-existing currency exposure. An analysis of a rich dataset of European banks’ aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area.

Suggested Citation

  • Signe Krogstrup & Cédric Tille, 2018. "Foreign Currency Bank Funding and Global Factors," IMF Working Papers 18/97, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:18/97
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    References listed on IDEAS

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    Cited by:

    1. Fischer, Andreas M & Yesin, Pinar, 2019. "Foreign currency loan conversions and currency mismatches," CEPR Discussion Papers 13923, C.E.P.R. Discussion Papers.
    2. McQuade, Peter & Schmitz, Martin, 2019. "America First? A US-centric view of global capital flows," Working Paper Series 2238, European Central Bank.

    More about this item

    Keywords

    Capital flows; Spillovers; Currency mismatch; push factors; cross-border transmission of shocks; European bank balance sheets; International Lending and Debt Problems; Financial Aspects of Economic Integration;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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