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

Qingqing Cao (), Raoul Minetti and Maria Pia Olivero ()
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Qingqing Cao: Michigan State University
Maria Pia Olivero: Drexel University and Haverford College

No wpC27, CERBE Working Papers from CERBE Center for Relationship Banking and Economics

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 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

Keywords: Multinational Banks; Macroeconomic Stability; Business Cycle (search for similar items in EconPapers)
JEL-codes: E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-mac
Date: 2018-04
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