TY - JOUR
T1 - Banking globalization and international business cycles
T2 - Cross-border chained credit contracts and financial accelerators
AU - Ueda, Kozo
PY - 2012/1
Y1 - 2012/1
N2 - This paper constructs a two-country DSGE model to study the nature of the recent financial crisis and its effects that spread immediately throughout the world owing to the globalization of banking. In the model, financial intermediaries (FIs) enter into chained credit contracts at home and abroad, engaging in cross-border lending to entrepreneurs by undertaking cross-border borrowing from investors. The FIs as well as the entrepreneurs in two countries are credit constrained, so all of their net worths matter. Our model reveals that under FIs' globalization, adverse shocks that hit one country affect the other, yielding business cycle synchronization on both the real and financial sides. It also suggests that the FIs' globalization, net worth shock, and credit constraints are key to understanding the recent financial crisis.
AB - This paper constructs a two-country DSGE model to study the nature of the recent financial crisis and its effects that spread immediately throughout the world owing to the globalization of banking. In the model, financial intermediaries (FIs) enter into chained credit contracts at home and abroad, engaging in cross-border lending to entrepreneurs by undertaking cross-border borrowing from investors. The FIs as well as the entrepreneurs in two countries are credit constrained, so all of their net worths matter. Our model reveals that under FIs' globalization, adverse shocks that hit one country affect the other, yielding business cycle synchronization on both the real and financial sides. It also suggests that the FIs' globalization, net worth shock, and credit constraints are key to understanding the recent financial crisis.
KW - Business cycle synchronization
KW - Contagion
KW - Correlation (quantity) puzzle
KW - Financial accelerator
KW - Financial intermediaries
KW - Monetary policy
UR - http://www.scopus.com/inward/record.url?scp=84858442508&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84858442508&partnerID=8YFLogxK
U2 - 10.1016/j.jinteco.2011.08.012
DO - 10.1016/j.jinteco.2011.08.012
M3 - Article
AN - SCOPUS:84858442508
VL - 86
SP - 1
EP - 16
JO - Journal of International Economics
JF - Journal of International Economics
SN - 0022-1996
IS - 1
ER -