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The effects of global bank competition and presence on local business cycles: The Goldilocks principle does not apply to global banking

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  • Uluc Aysun

    (University of Central Florida, Orlando, FL)

Abstract

I solve a two-country real business cycle model that includes Cournot competitive global and local banks to investigate the impact of banking competition and global bank presence on local business cycles. Simulations reveal an inverted U-shaped relationship between the two factors and the volatility of output when global banks face portfolio adjustment costs. This relationship is determined by the asymmetric degree of diminishing returns to lending that global banks face in each economy. Specifcally, when global banks have a larger presence or are less competitive in one of the economies than the other, the cross-country mobility of loanable funds and the local responses to domestic shocks are smaller compared those obtained when the two economies are more symmetric.

Suggested Citation

  • Uluc Aysun, 2015. "The effects of global bank competition and presence on local business cycles: The Goldilocks principle does not apply to global banking," Working Papers 2015-02, University of Central Florida, Department of Economics, revised Oct 2015.
    • Handle: RePEc:cfl:wpaper:2015
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    References listed on IDEAS

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    1. Badarau, Cristina & Lapteacru, Ion, 2020. "Bank risk, competition and bank connectedness with firms: A literature review," Research in International Business and Finance, Elsevier, vol. 51(C).

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    More about this item

    Keywords

    Global banks; Cournot competition; real business cycles; bank size;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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