Global banks, financial shocks and international business cycles: evidence from an estimated model
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.
File(s): File format is application/pdf http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0120.pdf
Provider: Federal Reserve Bank of Dallas
Part of Series: Globalization Institute Working Papers
Publication Date: 2012
Pages: 41 pages
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.