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Banking globalization, local lending, and labor market effects: Micro-level evidence from Brazil

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  • Noth, Felix
  • Ossandon Busch, Matias

Abstract

Little is known about how banks' domestic funding networks affect the transmission of capital flows reversals to the real economy. Our robust results show that a foreign funding shock to banks in Brazil negatively affects lending by their regional branches, especially when they are subjected to funding fragmentation. This effect triggers a sizable drop in credit and job creation at the municipal level. Our findings suggest that despite substitution possibilities across banks and firms, banks' funding networks matter to explain the distributional effects of foreign financial shocks.

Suggested Citation

  • Noth, Felix & Ossandon Busch, Matias, 2019. "Banking globalization, local lending, and labor market effects: Micro-level evidence from Brazil," IWH Discussion Papers 7/2017, Halle Institute for Economic Research (IWH).
  • Handle: RePEc:zbw:iwhdps:72017
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    Citations

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    Cited by:

    1. Kneer, Christiane & Raabe, Alexander, 2019. "Tracking foreign capital: the effect of capital inflows on bank lending in the UK," Bank of England working papers 804, Bank of England.
    2. Becker, Chris & Ossandon Busch, Matias & Tonzer, Lena, 2020. "Macroprudential policy and intra-group dynamics: The effects of reserve requirements in Brazil," IWH Discussion Papers 21/2017, Halle Institute for Economic Research (IWH).
    3. Littke, Helge C. N. & Ossandon Busch, Matias, 2018. "Banks fearing the drought? Liquidity hoarding as a response to idiosyncratic interbank funding dry-ups," IWH Discussion Papers 12/2018, Halle Institute for Economic Research (IWH).
    4. Gustavo S. Cortes & Thiago Christiano Silva & Bernardus F. N. Van Doornik, 2019. "Credit Shock Propagation in Firm Networks: evidence from government bank credit expansions," Working Papers Series 507, Central Bank of Brazil, Research Department.
    5. Nicholas Coleman & Ricardo Correa & Leo Feler & Jason Goldrosen, 2017. "Internal Liquidity Management and Local Credit Provision," International Finance Discussion Papers 1204, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    capital flows reversals; branch funding networks; bank lending; regional labor markets;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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