Cross-Border flows and the effect of Global Financial shocks in Latin America

Rocio Gondo Mori and Fernando Pérez Forero ()

No 2019-020, Working Papers from Banco Central de Reserva del Perú

Abstract: This work quantifies the effect of changes in global financial conditions on cross-border flows and domestic financial and macroeconomic variables for a group of countries in Latin America. Using the BIS database of international banking statistics, we consider heterogeneous effects of different types of international financing (credit from global banks to domestic banks and non-financial firms and bond issuance by non-financial firms), on the behavior of the domestic banking system and the transmission to the real economy through the link between bank credit, investment and output. Consistent with the implications from a DSGE model such as Aoki et al. (2018), our results show that an increase in foreign interest rates translate into lower external funding for banks and thus into lower credit growth and higher domestic interest rates. This effect is amplified through an exchange rate depreciation due to capital outflows. We find evidence of a larger drop in flows from global banks to domestic banks relative to those from global banks to non-financial firms. In terms of the real economy, we observe a reduction in GDP growth, although not significant, and an increase in inflation due to the pass through effect from the exchange rate to prices.

Keywords: Panel Vector Autoregressions; Exogenous Block; Bayesian Estimation; Cross-Border flows. (search for similar items in EconPapers)
JEL-codes: C23 E44 F21 F32 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bcrp.gob.pe/docs/Publicaciones/Documen ... trabajo-020-2019.pdf Application/pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2019-020

Access Statistics for this paper

More papers in Working Papers from Banco Central de Reserva del Perú Contact information at EDIRC.
Bibliographic data for series maintained by Research Unit ().