Global Banks and Systemic Debt Crises

Juan Morelli, Pablo Ottonello and Diego J. Perez

No 28892, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the role of global financial intermediaries in international lending. We construct a model of the world economy, in which heterogeneous borrowers issue risky securities purchased by financial intermediaries. Aggregate shocks transmit internationally through financial intermediaries' net worth. The strength of this transmission is governed by the degree of frictions intermediaries face in financing their risky investments. We provide direct empirical evidence on this mechanism showing that around Lehman Brothers' collapse, emerging-market bonds held by more distressed global banks experienced larger price contractions. A quantitative analysis of the model shows that global financial intermediaries play a relevant role in driving borrowing-cost and consumption fluctuations in emerging-market economies, during both debt crises and regular business cycles. The portfolio of financial intermediaries and the distribution of bond holdings in the world economy are key to determine aggregate dynamics.

JEL-codes: E3 F3 F41 (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-opm
Note: AP EFG IFM ME
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Citations: View citations in EconPapers (9)

Published as Juan M. Morelli & Pablo Ottonello & Diego J. Perez, 2022. "Global Banks and Systemic Debt Crises," Econometrica, Econometric Society, vol. 90(2), pages 749-798, March.

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Working Paper: Global Banks and Systemic Debt Crises (2019)
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