IDEAS home Printed from https://ideas.repec.org/p/tcd/tcduee/tep0920.html
   My bibliography  Save this paper

Uncertainty Shocks and the Cross-Border Funding of Banks: Unmasking Heterogeneity

Author

Listed:
  • Agustin Benetrix

    (Department of Economics, Trinity College Dublin)

  • Michael Curran

    (Department of Economics, Villanova University)

Abstract

This paper looks at the relation between uncertainty shocks and cross-border funding of banks through the lens of a new dataset. Our key innovation is to study the impact of uncertainty measures based on volatility, newspapers, and professional forecast surveys. We provide a comprehensive assessment of how cross-border liabilities in different banking systems respond to the uncertainty type, funding sector, country, and period. We show that the contraction of bank funding can be large and quite different along these dimensions. Volatility-based uncertainty and non-bank funding display the strongest results, with news-based uncertainty mattering most outside the Global Financial Crisis.

Suggested Citation

  • Agustin Benetrix & Michael Curran, 2020. "Uncertainty Shocks and the Cross-Border Funding of Banks: Unmasking Heterogeneity," Trinity Economics Papers tep0920, Trinity College Dublin, Department of Economics.
  • Handle: RePEc:tcd:tcduee:tep0920
    as

    Download full text from publisher

    File URL: https://www.tcd.ie/Economics/TEP/2020/TEP0920.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Forbes, Kristin J. & Warnock, Francis E., 2012. "Capital flow waves: Surges, stops, flight, and retrenchment," Journal of International Economics, Elsevier, vol. 88(2), pages 235-251.
    2. Philip R. Lane & Peter McQuade, 2014. "Domestic Credit Growth and International Capital Flows," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(1), pages 218-252, January.
    3. Gian-Maria Milesi-Ferretti & Cédric Tille, 2011. "The great retrenchment: international capital flows during the global financial crisis [‘The great trade collapse: what caused it and what does it mean?’]," Economic Policy, CEPR;CES;MSH, vol. 26(66), pages 289-346.
    4. Cerutti, Eugenio & Hale, Galina & Minoiu, Camelia, 2015. "Financial crises and the composition of cross-border lending," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 60-81.
    5. Stefan Avdjiev & Wenxin Du & Cathérine Koch & Hyun Song Shin, 2019. "The Dollar, Bank Leverage, and Deviations from Covered Interest Parity," American Economic Review: Insights, American Economic Association, vol. 1(2), pages 193-208, September.
    6. R?diger Bachmann & Steffen Elstner & Eric R. Sims, 2013. "Uncertainty and Economic Activity: Evidence from Business Survey Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 217-249, April.
    7. Morikawa, Masayuki, 2016. "Business uncertainty and investment: Evidence from Japanese companies," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 224-236.
    8. Rey, Hélène, 2015. "Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence," CEPR Discussion Papers 10591, C.E.P.R. Discussion Papers.
    9. McCauley, Robert N. & Bénétrix, Agustín S. & McGuire, Patrick M. & von Peter, Goetz, 2019. "Financial deglobalisation in banking?," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 116-131.
    10. Eugenio Cerutti & Stijn Claessens & Lev Ratnovski, 2017. "Global liquidity and cross-border bank flows," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 32(89), pages 81-125.
    11. repec:oup:ecpoli:v:26:y:2011:i:66:p:285-342 is not listed on IDEAS
    12. Choi, Sangyup & Furceri, Davide, 2019. "Uncertainty and cross-border banking flows," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 260-274.
    13. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    14. Bruno, Valentina & Shin, Hyun Song, 2015. "Capital flows and the risk-taking channel of monetary policy," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 119-132.
    15. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230, National Bureau of Economic Research, Inc.
    16. Ahmed, Shaghil & Zlate, Andrei, 2014. "Capital flows to emerging market economies: A brave new world?," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 221-248.
    17. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    18. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    19. Gauvin, L. & McLoughlin, C. & Reinhardt, D., 2013. "Policy Uncertainty Spillovers to Emerging Markets - Evidence from Capital Flows," Working papers 435, Banque de France.
    20. Broner, Fernando & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio L., 2013. "Gross capital flows: Dynamics and crises," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 113-133.
    21. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    22. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    23. Curran, Michael & Velic, Adnan, 2019. "Real exchange rate persistence and country characteristics: A global analysis," Journal of International Money and Finance, Elsevier, vol. 97(C), pages 35-56.
    24. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    25. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    26. Michael Siemer & Adrien Verdelhan & Francois Gourio, 2015. "Uncertainty and International Capital Flows," 2015 Meeting Papers 880, Society for Economic Dynamics.
    27. Lane, Philip & Milesi-Ferretti, Gian Maria, "undated". "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
    28. Kleimeier, Stefanie & Sander, Harald & Heuchemer, Sylvia, 2013. "Financial crises and cross-border banking: New evidence," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 884-915.
    29. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
    30. Gabriel Perez-Quiros & Margaret M. McConnell, 2000. "Output Fluctuations in the United States: What Has Changed since the Early 1980's?," American Economic Review, American Economic Association, vol. 90(5), pages 1464-1476, December.
    31. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    32. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(1), pages 41-76, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Choi, Sangyup & Ciminelli, Gabriele & Furceri, Davide, 2023. "Is domestic uncertainty a local pull factor driving foreign capital inflows? New cross-country evidence," Journal of International Money and Finance, Elsevier, vol. 130(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Choi, Sangyup & Furceri, Davide, 2019. "Uncertainty and cross-border banking flows," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 260-274.
    2. Choi, Sangyup & Ciminelli, Gabriele & Furceri, Davide, 2023. "Is domestic uncertainty a local pull factor driving foreign capital inflows? New cross-country evidence," Journal of International Money and Finance, Elsevier, vol. 130(C).
    3. Sangyup Choi & Davide Furceri & Chansik Yoon, 2021. "International Fiscal-Financial Spillovers:the Effect of Fiscal Shocks on Cross-Border Bank Lending," Open Economies Review, Springer, vol. 32(2), pages 259-290, April.
    4. Benhima, Kenza & Cordonier, Rachel, 2022. "News, sentiment and capital flows," Journal of International Economics, Elsevier, vol. 137(C).
    5. Emter, Lorenz, 2023. "Leverage cycles, growth shocks, and sudden stops in capital inflows," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 711-731.
    6. Bonciani, Dario & Ricci, Martino, 2018. "The global effects of global risk and uncertainty," Working Paper Series 2179, European Central Bank.
    7. Wang, Yabin, 2018. "Fickle capital flows and retrenchment: Evidence from bilateral banking data," Journal of International Money and Finance, Elsevier, vol. 87(C), pages 1-21.
    8. Eugenio Cerutti & Stijn Claessens & Andrew K. Rose, 2019. "How Important is the Global Financial Cycle? Evidence from Capital Flows," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(1), pages 24-60, March.
    9. Ibrahim D. Raheem & Sara le Roux & Simplice A. Asongu, 2019. "The Role of Asymmetry and Uncertainties in the Capital Flows- Economic Growth Nexus," Research Africa Network Working Papers 19/047, Research Africa Network (RAN).
    10. Carvalho, Daniel, 2020. "Leverage and valuation effects: How global liquidity shapes sectoral balance sheets," International Review of Financial Analysis, Elsevier, vol. 72(C).
    11. Albrizio, Silvia & Choi, Sangyup & Furceri, Davide & Yoon, Chansik, 2020. "International bank lending channel of monetary policy," Journal of International Money and Finance, Elsevier, vol. 102(C).
    12. Lu, Dong & Liu, Jialin & Zhou, Hang, 2022. "Global financial conditions, capital flows and the exchange rate regime in emerging market economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    13. Ligonniere, Samuel, 2018. "Trilemma, dilemma and global players," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 20-39.
    14. Stefan Avdjiev & Valentina Bruno & Catherine Koch & Hyun Song Shin, 2019. "The Dollar Exchange Rate as a Global Risk Factor: Evidence from Investment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(1), pages 151-173, March.
    15. Daniel Carvalho & Etienne Lepers & Rogelio Jr Mercado, 2021. "Taming the "Capital Flows-Credit Nexus": A Sectoral Approach," Trinity Economics Papers tep0921, Trinity College Dublin, Department of Economics.
    16. Davis, J. Scott & Van Wincoop, Eric, 2018. "Globalization and the increasing correlation between capital inflows and outflows," Journal of Monetary Economics, Elsevier, vol. 100(C), pages 83-100.
    17. McQuade, Peter & Schmitz, Martin, 2017. "The great moderation in international capital flows: A global phenomenon?," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 188-212.
    18. Nataliia Osina, 2021. "Global governance and gross capital flows dynamics," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(3), pages 463-493, August.
    19. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    20. Stijn Claessens, 2017. "Global Banking: Recent Developments and Insights from Research," Review of Finance, European Finance Association, vol. 21(4), pages 1513-1555.

    More about this item

    Keywords

    uncertainty; international capital flows; BIS Locational Banking Statistics; retrenchment; flight-to-safety;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tcd:tcduee:tep0920. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Colette Angelov (email available below). General contact details of provider: https://edirc.repec.org/data/detcdie.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.