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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

Uluc Aysun ()

No 2015-02, Working Papers from University of Central Florida, Department of Economics

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.

Keywords: Global banks; Cournot competition; real business cycles; bank size (search for similar items in EconPapers)
JEL-codes: E32 E44 F33 F44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-com, nep-dge and nep-mac
Date: 2015-08, Revised 2015-10
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