Flight Home, Flight Abroad and International Credit Cycles
11 Pages Posted: 10 Nov 2011
Date Written: November 9, 2011
This paper shows that banks exhibit a weaker (stronger) home bias in the extension of new loans when funding conditions in their home country improve (deteriorate). We refer to these changes in home bias as flight home and flight abroad effects, respectively, and show that they are unrelated to the better known flight to quality effect that arises during periods of market turmoil. Our results also indicate that global banks amplify the effect of home-grown shocks on foreign countries while they are a stabilizing factor for the supply of credit in their home countries.
Keywords: Global banks, Home Bias, International Finacial Transmission
JEL Classification: F4, G2
Suggested Citation: Suggested Citation