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Financial intermediation and the international business cycle: The case of small countries with big banks

  • Gunes Kamber
  • Christoph Thoenissen

We examine the transmission mechanism of banking sector shocks in a two-country DSGE model. Assuming that the home country is small relative to the rest of world, we find that spillovers from foreign banking sector shocks are modest unless banks in the small country hold foreign banking assets. The correlation between home and foreign GDP rises with the exposure of the of the domestic banking sector to foreign bank assets.

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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 201108.

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Date of creation: 21 Jun 2011
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Handle: RePEc:san:cdmawp:1108
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