Global Banks, Financial Shocks and International Business Cycles: Evidence from an Estimated Model

CAMA Working Paper 30/2013

46 Pages Posted: 8 Jun 2013

See all articles by Robert Kollmann

Robert Kollmann

ECARES, Université Libre de Bruxelles; University of Paris XII - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

This paper estimates a two-country model with a global bank, using US and Euro Area (EA) data, and Bayesian methods. The estimated model matches key US and EA business cycle statistics. Empirically, a model version with a bank capital requirement outperforms a structure without such a constraint. A loan loss originating in one country triggers a global output reduction. Banking shocks matter more for EA macro variables than for US real activity. Banking shocks account for about 3%-5% of the unconditional variance of US GDP and for 4%-14% of the variance of EA GDP. During the Great Recession (2007-09), banking shocks accounted for about 12%-20% of the fall in US and EA GDP, and for more than a third of the fall in EA investment and employment.

Keywords: financial crisis, global banking, real activity, investment, Bayesian econometrics

JEL Classification: F36, F37, E44, G21

Suggested Citation

Kollmann, Robert, Global Banks, Financial Shocks and International Business Cycles: Evidence from an Estimated Model (May 2013). CAMA Working Paper 30/2013, Available at SSRN: https://ssrn.com/abstract=2275703 or http://dx.doi.org/10.2139/ssrn.2275703

Robert Kollmann (Contact Author)

ECARES, Université Libre de Bruxelles ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

University of Paris XII - Department of Economics ( email )

61 avenue du General de Gaulle
Creteil cedex, 94010
France

HOME PAGE: http://www.robertkollmann.com

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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