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Banking Globalization and International Business Cycles

Author

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  • Kozo Ueda

    (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouzou.ueda boj.or.jp))

Abstract

This paper constructs a two-country DSGE model to study the nature of the recent financial crisis and its effects that spread immediately throughout the world owing to the globalization of banking. In the model, financial intermediaries (FIs) enter into chained credit contracts at home and abroad, engaging in cross-border lending to entrepreneurs by undertaking cross-border borrowing from investors. The FIs as well as the entrepreneurs in two countries are credit constrained, so all of their net worths matter. Our model reveals that under FIs' globalization, adverse shocks that hit one country affect the other, yielding business cycle synchronization on both the real and financial sides. It also suggests that the FIs' globalization, net worth shock, and credit constraints are key to understanding the recent financial crisis.

Suggested Citation

  • Kozo Ueda, 2010. "Banking Globalization and International Business Cycles," IMES Discussion Paper Series 10-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:10-e-16
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    File URL: http://www.imes.boj.or.jp/research/papers/english/10-E-16.pdf
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    References listed on IDEAS

    as
    1. Van den Heuvel, Skander J., 2008. "The welfare cost of bank capital requirements," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 298-320, March.
    2. International Monetary Fund, 2000. "Spillovers Through Banking Centers: A Panel Data Analysis," IMF Working Papers 2000/088, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Banking globalization and international business cycles
      by Christian Zimmermann in NEP-DGE blog on 2010-09-16 01:26:15

    Citations

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    Cited by:

    1. Robert Kollmann, 2013. "Global Banks, Financial Shocks, and International Business Cycles: Evidence from an Estimated Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 159-195, December.
    2. Ueda, Kozo, 2012. "Banking globalization and international business cycles: Cross-border chained credit contracts and financial accelerators," Journal of International Economics, Elsevier, vol. 86(1), pages 1-16.
    3. Lawrence Christiano & Daisuke Ikeda, 2011. "Government Policy, Credit Markets and Economic Activity," NBER Working Papers 17142, National Bureau of Economic Research, Inc.
    4. Kollmann, Robert & Enders, Zeno & Müller, Gernot J., 2011. "Global banking and international business cycles," European Economic Review, Elsevier, vol. 55(3), pages 407-426, April.
    5. Shigenori Shiratsuka & Wataru Takahashi & Yuki Teranishi & Kozo Ueda, 2010. "Future of Central Banking under Globalization: Summary of the 2010 International Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 1-16, November.
    6. Eric van Wincoop, 2013. "International Contagion through Leveraged Financial Institutions," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 152-189, July.
    7. Mark A. Wynne, 2012. "Five Years of Research on Globalization and Monetary Policy: What Have We Learned?," Annual Report, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, pages 2-17.
    8. J. Scott Davis, 2010. "The adverse feedback loop and the effects of risk in both the real and financial sectors," Globalization Institute Working Papers 66, Federal Reserve Bank of Dallas.
    9. J. Scott Davis, 2011. "Financial integration and international business cycle co-movement: the role of balance sheets," Globalization Institute Working Papers 89, Federal Reserve Bank of Dallas.

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    More about this item

    Keywords

    Financial accelerator; financial intermediaries; correlation ( quantity) puzzle; business cycle synchronization; contagion; monetary policy;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • 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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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