Global Banks and Crisis Transmission

Fabrizio Perri, Kalemli-Özcan, Sebnem and Elias Papaioannou
Authors registered in the RePEc Author Service: Sebnem Kalemli-Ozcan

No 9044, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the effect of financial integration on the transmission of international business cycles. In a sample of 20 developed countries between 1978 and 2009 we find that, in periods without financial crises, increases in bilateral financial linkages are associated with more divergent output cycles. This relation is significantly weaker during financial turmoil periods, suggesting that financial crises induce co-movement among more financially integrated countries. We also show that countries with stronger, direct and indirect, financial ties to the U.S. experienced more synchronized cycles with the U.S. during the recent 2007-2009 crisis. We then interpret these findings using a simple general equilibrium model of international business cycles with banks and shocks to banking activity. The model suggests that the change in the relation between integration and synchronization can be driven by changes in the nature of shocks hitting the world economy, and that shocks to global banks played an important role in triggering and spreading the 2007-2009 crisis.

Keywords: Co-movement; Crisis; Financial integration; International business cycles (search for similar items in EconPapers)
JEL-codes: E32 F15 F36 (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-ifn, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Related works:
Journal Article: Global banks and crisis transmission (2013)
Working Paper: Global Banks and Crisis Transmission (2012)
Working Paper: Global Banks and Crisis Transmission (2011)
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