Implementing Cross-Border Interbank Lending in BoC-GEM-FIN

Malik Shukayev () and Argyn Toktamyssov ()
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Argyn Toktamyssov: Bank of Canada, International Economic Analysis Department, Postal: 234 Laurier Ave W, Ottawa, ON , K1A 0G9

No 2016-15, Working Papers from University of Alberta, Department of Economics

Abstract: BIS interbank lending data show that the Great Recession generated large and persistent changes in the international interbank lending positions of various countries. The main objective of this study is to understand the role of changes in international interbank credit flows in transmitting shocks across borders. To accomplish this, we needed a global structural model with an international interbank market. Our search for a suitable structural model revealed that the Bank of Canadas version of the Global Economy Model (BoC-GEM-FIN) comes closest to our needs. BoC-GEM-FIN includes region-specific interbank markets, as well as some international borrowing and lending, but abstracts from international interbank lending. This paper describes the modifications we made in order to introduce the international interbank market into BoC-GEM-FIN. The modified model is calibrated to match the changes in international interbank lending positions and the decline in the US banksbusiness lending that took place after the fourth quarter of 2008. Our simulations show that the international interbank market amplifies the spillover effects of demand shocks but does not systematically alter the effects of supply shocks, including those for commodities.

Keywords: Business fluctuations and cycles; economic models; international transmission of shocks (search for similar items in EconPapers)
JEL-codes: E27 E37 F47 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2016-09-26
New Economics Papers: this item is included in nep-mac
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Working Paper: Implementing Cross-Border Interbank Lending in BoC-GEM-FIN (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2016_015

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