Financial integration and the co-movement of economic activity: Evidence from U.S. states

Martin Götz and Juan Carlos Gozzi

No 37/2021, Discussion Papers from Deutsche Bundesbank

Abstract: We analyze the effect of the geographic expansion of banks across U.S. states on the co-movement of economic activity between states. Exploiting the removal of interstate banking restrictions to construct time-varying instrumental variables at the state-pair level, we find that bilateral banking integration increases output co-movement between states. The effect of financial integration depends on the nature of the idiosyncratic shocks faced by states and is stronger for financially dependent industries. Finally, we show that integration increases the similarity of bank lending fluctuations between states and contributes to the transmission of deposit shocks across states.

Keywords: banking integration; synchronization; financial deregulation; business cycles (search for similar items in EconPapers)
JEL-codes: E32 F36 F44 G21 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-fdg, nep-his and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:372021

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