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Capital Flows, Cross-Border Banking and Global Liquidity

  • Valentina Bruno
  • Hyun Song Shin

We investigate global factors associated with cross-border capital flows. We formulate a model of gross capital flows through the international banking system and derive a closed form solution that highlights the leverage cycle of global banks as being a prime determinant of the transmission of financial conditions across borders. We then test the predictions of our model in a panel study of 46 countries and find that global factors dominate local factors as determinants of banking sector capital flows.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19038.

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Date of creation: May 2013
Date of revision:
Publication status: published as Journal of Monetary Economics Volume 71, April 2015, Pages 119–132 Cover image Capital flows and the risk-taking channel of monetary policy Valentina Brunoa, Hyun Song Shinb, ,
Handle: RePEc:nbr:nberwo:19038
Note: CF IFM
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  1. Joon-Ho Hahm & Hyun Song Shin & Kwanho Shin, 2012. "Non-Core Bank Liabilities and Financial Vulnerability," NBER Working Papers 18428, National Bureau of Economic Research, Inc.
  2. Valentina Bruno & Hyun Song Shin, 2012. "Capital Flows and the Risk-Taking Channel of Monetary Policy," BIS Working Papers 400, Bank for International Settlements.
  3. Hau, Harald & Rey, Hélène, 2008. "Global Portfolio Rebalancing Under the Microscope," CEPR Discussion Papers 6901, C.E.P.R. Discussion Papers.
  4. Claudio Borio & Piti Disyatat, 2011. "Global imbalances and the financial crisis: Link or no link?," BIS Working Papers 346, Bank for International Settlements.
  5. Ana Fostel & John Geanakoplos, 2012. "Endogenous Leverage in a Binomial Economy: The Irrelevance of Actual Default," Cowles Foundation Discussion Papers 1877, Cowles Foundation for Research in Economics, Yale University.
  6. Stijn Claessens & Neeltje van Horen, 2011. "Foreign Banks: Trends, Impact and Financial Stability," DNB Working Papers 330, Netherlands Central Bank, Research Department.
  7. Hyun Song Shin & Kwanho Shin, 2011. "Procyclicality and Monetary Aggregates," NBER Working Papers 16836, National Bureau of Economic Research, Inc.
  8. Lane, Philip R. & Pels, Barbara, 2012. "Current Account Imbalances in Europe," CEPR Discussion Papers 8958, C.E.P.R. Discussion Papers.
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