nep-ifn New Economics Papers
on International Finance
Issue of 2017‒02‒12
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Capital Flows and the International Credit Channel By Yusuf Soner Baskaya; Julian di Giovanni; Sebnem Kalemli-Özcan; José-Luis Peydró; Mehmet Fatih Ulu
  2. Gross Capital Inflows to Banks, Corporates and Sovereigns By Avdjiev, Stefan; Hardy, Bryan; Kalemli-Ozcan, Sebnem; Servén, Luis
  3. Global Booms, Domestic Busts: The Global Dimension of Banking Crise By Ambrogio Cesa-Bianchi; Fernando Eguren Martin; Gregory Thwaites

  1. By: Yusuf Soner Baskaya; Julian di Giovanni; Sebnem Kalemli-Özcan; José-Luis Peydró; Mehmet Fatih Ulu
    Abstract: We examine the role of the international credit channel in Turkey over 2005–2013. We show that larger, more capitalised banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post 2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks’ external borrowing for domestic credit growth.
    Keywords: Capital flows, bank-lending channel, bank heterogeneity
    JEL: E0 F0 F1
    Date: 2017–01
  2. By: Avdjiev, Stefan; Hardy, Bryan; Kalemli-Ozcan, Sebnem; Servén, Luis
    Abstract: We construct a new data set for gross capital inflows during 1996-2014 for 85 countries at a quarterly frequency. We decompose debt inflows by borrower type: banks, corporates and sovereigns. Using our new data, we present dynamic and cross sectional patterns in capital inflows as a function of global push factors and countries' own business cycles. This exercise reveals that patterns evident in aggregate capital flows data do not hold up consistently across different borrower types. When global risk appetite is low, as proxied by high VIX, capital flows into banks and corporates decline both in advanced economies (AE) and in emerging markets (EM). This is also true for EM sovereigns but not for AE, whose sovereign borrowing does not respond to VIX. Banks' and corporates' borrowing, both in EM and in AE are procyclical, whereas EM's sovereigns exhibit counter-cyclical borrowing. Capital inflows are procyclical in all assets classes except for portfolio debt inflows to EM, which exhibit a countercyclical pattern driven mainly by EM sovereigns and to some extent by EM corporates. Our results highlight the importance of separating capital flows by borrower type for understanding potential systemic risks related to capital flows, and show the difficulty of establishing robust stylized facts about capital flows' dynamics in a mixed sample of emerging and advanced countries.
    Date: 2017–01
  3. By: Ambrogio Cesa-Bianchi (Bank of England; Centre for Macroeconomics (CFM)); Fernando Eguren Martin (Bank of England); Gregory Thwaites (Bank of England; Centre for Macroeconomics (CFM))
    Abstract: This paper provides novel empirical evidence showing that foreign financial developments are a powerful predictor of domestic banking crises. Using a new data set for 38 advanced and emerging economies over 1970-2011, we show that credit growth in the rest of the world has a large positive effect on the probability of banking crises taking place at home, even when controlling for domestic credit growth. Our results suggest that this effect is larger for nancially open economies, and is consistent with transmission via cross-border capital ows and market sentiment. Direct contagion from foreign crises plays an important role, but does not account for the whole effect.
    Keywords: Financial Crises, Global Credit Cycle, Banking, Financial Stability, Sentiment
    JEL: E32 E44 E52 G01
    Date: 2017–01

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