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No Pain, No Gain. Multinational Banks in the Business Cycle

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Listed:
  • Qingqing Cao

    (Michigan State University)

  • Raoul Minetti

    (Michigan State University)

  • Maria Pia Olivero

    (Drexel University and Haverford College)

Abstract

We study the role of multinational banks in the propagation of business cycles in host countries. In our economy, multinational banks can transfer liquidity across borders through internal capital markets. However, their scarce knowledge of local firms’ collateral hinders their allocation of liquidity to firms. We find that, through the interaction between the “liquidity origination” advantage and the “liquidity allocation” disadvantage, multinational banks can act as a stabilizer in the immediate aftermath of domestic liquidity shocks but be a drag on the subsequent recovery. Structural and cyclical policies can ameliorate the trade-off induced by the presence of multinational banks

Suggested Citation

  • Qingqing Cao & Raoul Minetti & Maria Pia Olivero, 2018. "No Pain, No Gain. Multinational Banks in the Business Cycle," CERBE Working Papers wpC27, CERBE Center for Relationship Banking and Economics.
    • Handle: RePEc:lsa:wpaper:wpc27
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    References listed on IDEAS

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    More about this item

    Keywords

    Multinational Banks; Macroeconomic Stability; Business Cycle;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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