No Pain, No Gain. Multinational Banks in the Business Cycle

Qingqing Cao
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Qingqing Cao: Michigan State University

No 1059, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We study the role of multinational banks in the propagation of business cycles in host countries. In our economy, multinational banks can transfer liquidity across borders through internal capital markets. However, their scarce knowledge of local firms' collateral hinders their allocation of liquidity to firms. We find that, through the interaction between the "liquidity origination" advantage and the "liquidity allocation" disadvantage, multinational banks can act as a short-run stabilizer in the immediate aftermath of domestic liquidity shocks but be a drag on the subsequent recovery. Structural and cyclical policies can ameliorate the trade-off induced by the presence of multinational banks.

Date: 2018
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:1059

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