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Global banks, financial shocks and international business cycles: evidence from an estimated model

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  • Robert Kollmann

Abstract

This paper estimates a two-country model with a global bank, using U.S. and Euro area (EA) data, and Bayesian methods. The estimated model matches key U.S. and EA business cycle statistics. Empirically, a model version with a bank capital requirement outperforms a structure without such a constraint. A loan loss originating in one country triggers a global output reduction. Banking shocks matter more for EA macro variables than for U.S. real activity. During the Great Recession (2007?09), banking shocks accounted for about 20 percent of the fall in U.S. and EA GDP, and for more than half of the fall in EA investment and employment.

Suggested Citation

  • Robert Kollmann, 2012. "Global banks, financial shocks and international business cycles: evidence from an estimated model," Globalization Institute Working Papers 120, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddgw:120
    Note: Published as: Kollmann, Robert (2013), "Global Banks, Financial Shocks and International Business Cycles: Evidence from an Estimated Model," Journal of Money, Credit and Banking 45 (s2): 159-195.
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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