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Crisis, contagion and international policy spillovers under foreign ownership of banks

Author

Listed:
  • Michał Brzoza-Brzezina
  • Marcin Kolasa
  • Krzysztof Makarski

Abstract

This paper checks how international spillovers of shocks and policies are modified when banks are foreign owned. To this end we build a twocountry macroeconomic model with banking sectors that are owned by residents of one (big and foreign) country. Consistently with empirical findings, we find that foreign ownership of banks amplifies spillovers from foreign shocks. It also strenghtens the international transmission of monetary and macroprudential policies. We next replicate the financial crisis in the euro area and show how, by preventing bank capital outflow in 2009, the Polish regulatory authorities managed to reduce its contagion to Poland. We also show that under foreign bank ownership such policy is strongly prefered to a recapitalization of domestic banks.

Suggested Citation

  • Michał Brzoza-Brzezina & Marcin Kolasa & Krzysztof Makarski, 2016. "Crisis, contagion and international policy spillovers under foreign ownership of banks," NBP Working Papers 231, Narodowy Bank Polski, Economic Research Department.
  • Handle: RePEc:nbp:nbpmis:231
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign-owned banks; monetary and macroprudential policy; international spillovers; DSGE models with banking;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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