IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Global Banks and Crisis Transmission

  • Sebnem Kalemli-Ozcan
  • Elias Papaioannou
  • Fabrizio Perri

We study the effect of financial integration (through banks) on the transmission of international business cycles. In a sample of 20 developed countries between 1978 and 2009 we find that, in periods without financial crises, increases in bilateral banking linkages are associated with more divergent output cycles.This relation is significantly weaker during financial turmoil periods, suggesting that financial crises induce co-movement among more financially integrated countries. We also show that countries with stronger, direct and indirect, financial ties to the U.S. experienced more synchronized cycles with the U.S. during the recent 2007-2009 crisis. We then interpret these findings using a simple general equilibrium model of international business cycles with banks and shocks to banking activity. The model suggests that the relation between integration and synchronization depends on the type of shocks hitting the world economy, and that shocks to global banks played an important role in triggering and spreading the 2007-2009 crisis.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w18209.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18209.

as
in new window

Length:
Date of creation: Jul 2012
Date of revision:
Publication status: published as Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Perri, Fabrizio, 2013. "Global banks and crisis transmission," Journal of International Economics, Elsevier, vol. 89(2), pages 495-510.
Handle: RePEc:nbr:nberwo:18209
Note: IFM
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Viral V. Acharya & Philipp Schnabl, 2010. "Do Global Banks Spread Global Imbalances? The Case of Asset-Backed Commercial Paper During the Financial Crisis of 2007-09," NBER Working Papers 16079, National Bureau of Economic Research, Inc.
  2. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010. "Financial regulation, financial globalization and the synchronization of economic activity," Working Paper Series 1221, European Central Bank.
  3. Philip Lane & Gian Maria Milesi-Ferretti, 2010. "The Cross-Country Incidence of the Global Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp333, IIIS.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "The Forgotten History of Domestic Debt," NBER Working Papers 13946, National Bureau of Economic Research, Inc.
  5. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2002. "Two Hundred Years of Contagion," MPRA Paper 13229, University Library of Munich, Germany.
  6. Baxter, M. & Crucini, M., 1991. "Business Cycles and the Asset Structure of Foreign Trade," RCER Working Papers 316, University of Rochester - Center for Economic Research (RCER).
  7. Glenn Otto & Graham Voss & Luke Willard, 2001. "Understanding OECD Output Correlations," RBA Research Discussion Papers rdp2001-05, Reserve Bank of Australia.
  8. Anna Pavlova & Roberto Rigobon, 2010. "International Macro-Finance," NBER Working Papers 16630, National Bureau of Economic Research, Inc.
  9. Canova, Fabio, 1999. "Does Detrending Matter for the Determination of the Reference Cycle and the Selection of Turning Points?," Economic Journal, Royal Economic Society, vol. 109(452), pages 126-50, January.
  10. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010. "What lies beneath the euro's effect on financial integration? Currency risk, legal harmonization, or trade?," Journal of International Economics, Elsevier, vol. 81(1), pages 75-88, May.
  11. Brian M. Doyle & Jon Faust, 2005. "Breaks in the Variability and Comovement of G-7 Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 721-740, November.
  12. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global Banks and International Shock Transmission: Evidence from the Crisis," NBER Working Papers 15974, National Bureau of Economic Research, Inc.
  13. Robert Kollmann, 2010. "Banks and International Business Cycles," 2010 Meeting Papers 1058, Society for Economic Dynamics.
  14. Reinhart, Carmen & Reinhart, Vincent, 2008. "Is the US too big to fail?," MPRA Paper 12976, University Library of Munich, Germany.
  15. ., 2008. "Capitalism, Economic Freedom and Performance," Chapters, in: Law, Informal Rules and Economic Performance, chapter 8 Edward Elgar Publishing.
  16. Claudia M. Buch & Kai Carstensen & Andrea Schertler, 2010. "Macroeconomic Shocks and Banks' Foreign Assets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(1), pages 171-188, 02.
  17. Geert Bekaert & Michael Ehrmann & Marcel Fratzscher & Arnaud J. Mehl, 2011. "Global Crises and Equity Market Contagion," NBER Working Papers 17121, National Bureau of Economic Research, Inc.
  18. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "International Investment Patterns," CEPR Discussion Papers 4499, C.E.P.R. Discussion Papers.
  19. Michael B. Devereux & James Yetman, 2010. "Leverage Constraints and the International Transmission of Shocks," NBER Working Papers 16226, National Bureau of Economic Research, Inc.
  20. Reinhart, Carmen M. & Rogoff, Kenneth S., 2008. "Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison," Scholarly Articles 11129156, Harvard University Department of Economics.
  21. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises; The Good, the Bad, and the Ugly," IMF Working Papers 10/146, International Monetary Fund.
  22. Reinhart, Carmen M. & Rogoff, Kenneth S., 2013. "Banking crises: An equal opportunity menace," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4557-4573.
  23. Kollmann, Robert & Enders, Zeno & Müller, Gernot J., 2011. "Global banking and international business cycles," European Economic Review, Elsevier, vol. 55(3), pages 407-426, April.
  24. Heathcote, Jonathan & Perri, Fabrizio, 2001. "Financial Globalization and Real Regionalization," Working Papers 01-05, Duke University, Department of Economics.
  25. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects, the monetary transmission mechanism, and monetary policy," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-14.
  26. Perri, Fabrizio & Quadrini, Vincenzo, 2011. "International Recessions," CEPR Discussion Papers 8483, C.E.P.R. Discussion Papers.
  27. Maurice Obstfeld, 1992. "Risk-Taking, Global Diversification, and Growth," NBER Working Papers 4093, National Bureau of Economic Research, Inc.
  28. Reinhart, Carmen, 2009. "The Second Great Contraction," MPRA Paper 21485, University Library of Munich, Germany.
  29. Pablo Andres Neumeyer & Fabrizio Perri, 1999. "Business Cycles in Emerging Economies: the role of interest rates," Department of Economics Working Papers 014, Universidad Torcuato Di Tella.
  30. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 82(2), pages 346-53, May.
  31. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2005. "Cultural Biases in Economic Exchange," CEPR Discussion Papers 4837, C.E.P.R. Discussion Papers.
  32. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
  33. Markus K. Brunnermeier & Thomas M. Eisenbach & Yuliy Sannikov, 2012. "Macroeconomics with Financial Frictions: A Survey," NBER Working Papers 18102, National Bureau of Economic Research, Inc.
  34. Heathcote, Jonathan & Perri, Fabrizio, 1999. "Financial Autarky and International Business Cycles," SSE/EFI Working Paper Series in Economics and Finance 320, Stockholm School of Economics, revised 30 Apr 2000.
  35. Patrick J. Kehoe & Fabrizio Perri, 2002. "International Business Cycles with Endogenous Incomplete Markets," Econometrica, Econometric Society, vol. 70(3), pages 907-928, May.
  36. Degryse, H.A. & Elahi, M.A. & Penas, M.F., 2009. "Cross-Border Exposures and Financial Contagion," Discussion Paper 2009-20, Tilburg University, Center for Economic Research.
  37. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
  38. -, 2008. "Revista de la CEPAL no.94," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
  39. Chudik, Alexander & Fratzscher, Marcel, 2011. "Identifying the global transmission of the 2007-2009 financial crisis in a GVAR model," European Economic Review, Elsevier, vol. 55(3), pages 325-339, April.
  40. Marianne Baxter & Michael A. Kouparitsas, 2004. "Determinants of business cycle comovement: a robust analysis," Working Paper Series WP-04-14, Federal Reserve Bank of Chicago.
  41. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  42. ., 2008. "From the Middle Ages to Capitalism," Chapters, in: Law, Informal Rules and Economic Performance, chapter 3 Edward Elgar Publishing.
  43. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2010. "Cross-Border Investment in Small International Financial Centers," CEPR Discussion Papers 7694, C.E.P.R. Discussion Papers.
  44. -, 2008. "Revista de la CEPAL no.95," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
  45. Jean Imbs, 2006. "The Real Effects of Financial Integration," Post-Print hal-00612566, HAL.
  46. Helbling, Thomas & Huidrom, Raju & Kose, M. Ayhan & Otrok, Christopher, 2011. "Do credit shocks matter? A global perspective," European Economic Review, Elsevier, vol. 55(3), pages 340-353, April.
  47. Chudik, Alexander & Fratzscher, Marcel, 2010. "Identifying the Global Transmission of the 2007-09 Financial Crisis in a GVAR Model," CEPR Discussion Papers 8093, C.E.P.R. Discussion Papers.
  48. Kalemli-Ozcan, S. & Sorensen, B.E. & Yosha, O., 1999. "Risk Sharing and Industrial Specialization: Regional and International Evidence," Papers 16-99, Tel Aviv.
  49. Roberto Rigobón & Kristin Forbes, 2001. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 1-46, January.
  50. Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 663-691.
  51. ., 2008. "The Method of Analysis," Chapters, in: Law, Informal Rules and Economic Performance, chapter 10 Edward Elgar Publishing.
  52. Jean Imbs, 2010. "The First Global Recession in Decades," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 58(2), pages 327-354, December.
  53. R Portes & H Rey, 2000. "The Determinants Of Cross-Border Equity Flows," CEP Discussion Papers dp0446, Centre for Economic Performance, LSE.
  54. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
  55. Enrique G. Mendoza & Vincenzo Quadrini, 2009. "Financial Globalization, Financial Crises and Contagion," NBER Working Papers 15432, National Bureau of Economic Research, Inc.
  56. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
  57. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
  58. ., 2008. "The Interaction Thesis," Chapters, in: Law, Informal Rules and Economic Performance, chapter 11 Edward Elgar Publishing.
  59. AfDB AfDB, 2008. "List of Working Paper Series (1 - 95)," Working Paper Series 356, African Development Bank.
  60. Luca Dedola & Giovanni Lombardo, 2012. "Financial frictions, financial integration and the international propagation of shocks," Economic Policy, CEPR;CES;MSH, vol. 27(70), pages 319-359, 04.
  61. ., 2008. "Ownership of Enterprises: Public or Private?," Chapters, in: Microeconomic Policy, chapter 10 Edward Elgar Publishing.
  62. AndrewK. Rose & MarkM. Spiegel, 2010. "Cross-Country Causes And Consequences Of The 2008 Crisis: International Linkages And American Exposure," Pacific Economic Review, Wiley Blackwell, vol. 15(3), pages 340-363, 08.
  63. Kubelec, Chris & Sa, Filipa, 2010. "The geographical composition of national external balance sheets: 1980-2005," Bank of England working papers 384, Bank of England.
  64. Donald P. Morgan & Bertrand Rime & Philip E. Strahan, 2004. "Bank Integration and State Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1555-1584.
  65. Gian M Milesi-Ferretti & Natalia T. Tamirisa & Francesco Strobbe, 2010. "Bilateral Financial Linkages and Global Imbalances; a View on The Eve of the Financial Crisis," IMF Working Papers 10/257, International Monetary Fund.
  66. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
  67. Douglas W. Diamond & Raghuram Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," NBER Working Papers 14739, National Bureau of Economic Research, Inc.
  68. Casey Mulligan, 2009. "What Caused the Recession of 2008? Hints from Labor Productivity," NBER Working Papers 14729, National Bureau of Economic Research, Inc.
  69. Andrew K. Rose & Mark M. Spiegel, 2002. "A Gravity Model of Sovereign Lending: Trade, Default and Credit," NBER Working Papers 9285, National Bureau of Economic Research, Inc.
  70. Robert Inklaar & Richard Jong-A-Pin & Jakob de Haan, 2005. "Trade and Business Cycle Synchronization in OECD Countries - a Re-examination," CESifo Working Paper Series 1546, CESifo Group Munich.
  71. Jain Mukesh & Sridharan R, . "Telecommunications: Some Social Issues," IIMA Working Papers WP1989-06-01_00880, Indian Institute of Management Ahmedabad, Research and Publication Department.
  72. Fedesarrollo, 2008. "Revaluación: ¿Qué alternativas existen?," COYUNTURA ECONÓMICA, FEDESARROLLO, June.
  73. Domenico Giannone & Lucrezia Reichlin, 2008. "Did the Euro imply more correlation of cycles?," ULB Institutional Repository 2013/13394, ULB -- Universite Libre de Bruxelles.
  74. Kindleberger,, 2008. "Financial Crises," Cambridge Books, Cambridge University Press, number 9780521068710, Junio.
  75. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  76. ., 2008. "Can Regulatory Ritualism be Transcended?," Chapters, in: Regulatory Capitalism, chapter 6 Edward Elgar Publishing.
  77. Arbache, Jorge & Go, Delfin S. & Page, John, 2008. "Is Africa's economy at a turning point?," Policy Research Working Paper Series 4519, The World Bank.
  78. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
  79. -, 2008. "Revista de la CEPAL no.96," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
  80. KRISHNAMURTY, Arvind, 2010. "How Debt Markets Have Malfunctioned in the Crisis," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 105-130.
  81. Alicia García-Herrero & Juan M. Ruiz, 2008. "Do trade and financial linkages foster business cycle synchronization in a small economy?," Working Papers 0810, Banco de España;Working Papers Homepage.
  82. Olivero, María Pía, 2010. "Market power in banking, countercyclical margins and the international transmission of business cycles," Journal of International Economics, Elsevier, vol. 80(2), pages 292-301, March.
  83. Mehmet Fatih Ekinci & Şebnem Kalemli-Özcan & Bent E. Sørensen, 2009. "Financial Integration within EU Countries: The Role of Institutions, Confidence and Trust," NBER Chapters, in: NBER International Seminar on Macroeconomics 2007, pages 325-391 National Bureau of Economic Research, Inc.
  84. Anitha V, 2008. "Personality Traits and Administrators," Working Papers 192, Institute for Social and Economic Change, Bangalore.
  85. ., 2008. "Capitalism and the Rule of Law," Chapters, in: Law, Informal Rules and Economic Performance, chapter 4 Edward Elgar Publishing.
  86. Arvind Krishnamurthy, 2010. "How Debt Markets Have Malfunctioned in the Crisis," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 3-28, Winter.
  87. Donald Morgan & Bertrand Rime & Philip Strahan, 2003. "Bank Integration and State Business Cycles," NBER Working Papers 9704, National Bureau of Economic Research, Inc.
  88. Van Rijckeghem, Caroline & Weder, Beatrice, 2003. "Spillovers through banking centers: a panel data analysis of bank flows," Journal of International Money and Finance, Elsevier, vol. 22(4), pages 483-509, August.
  89. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking and the international policy response," BIS Working Papers 291, Bank for International Settlements.
  90. ., 2008. "Is Regulatory Capitalism a Good Thing?," Chapters, in: Regulatory Capitalism, chapter 8 Edward Elgar Publishing.
  91. Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, vol. 51(1), pages 79-113, June.
  92. John Hart, 2008. "Terence Hutchison (1912-2007)," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 16(3), pages 9-15.
  93. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 2008. "Facts and myths about the financial crisis of 2008," Working Papers 666, Federal Reserve Bank of Minneapolis.
  94. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 1999. "Industrial specialization and the asymmetry of shocks across regions," Research Working Paper 99-06, Federal Reserve Bank of Kansas City.
  95. Arun Kumar, 2008. "Who is Worried about the National Interest?," Working Papers id:1561, eSocialSciences.
  96. AfDB AfDB, . "The AfDB Statistics Pocketbook 2008," AfDB Statistics Pocketbook, African Development Bank, number 3 edited by Koua Louis Kouakou, 11.
  97. ., 2008. "The Rule of Law and Capitalism: An Overview," Chapters, in: Law, Informal Rules and Economic Performance, chapter 9 Edward Elgar Publishing.
  98. Devereux, Michael B. & Sutherland, Alan, 2011. "Evaluating international financial integration under leverage constraints," European Economic Review, Elsevier, vol. 55(3), pages 427-442, April.
  99. ., 2008. "Defence, Disarmament and Conflict," Chapters, in: Microeconomic Policy, chapter 17 Edward Elgar Publishing.
  100. -, 2008. "What do the Results of PISA research show?," Educational Studies, Higher School of Economics, issue 1, pages 190-216.
  101. ., 2008. "Neoliberalism or Regulatory Capitalism?," Chapters, in: Regulatory Capitalism, chapter 1 Edward Elgar Publishing.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18209. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.