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Foreign Currency Bank Funding and Global Factors

Signe Krogstrup and Cédric Tille ()

No 18/97, IMF Working Papers from International Monetary Fund

Abstract: The literature on the drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood. We revisit this question by focusing on financial intermediaries’ funding flows in different currencies. A concise portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary’s pre-existing currency exposure. An analysis of a rich dataset of European banks’ aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area.

Keywords: Capital flows; Spillovers; Currency mismatch, push factors, cross-border transmission of shocks, European bank balance sheets, International Lending and Debt Problems, Financial Aspects of Economic Integration (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec and nep-ifn
Date: 2018-05-09
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Working Paper: Foreign Currency Bank Funding and Global Factors (2018) Downloads
Working Paper: Foreign Currency Bank Funding and Global Factors (2018) Downloads
Working Paper: Foreign currency bank funding and global factors (2018) Downloads
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