Supply- and Demand-Side Factors in Global Banking

34 Pages Posted: 19 Jun 2017

See all articles by Mary Amiti

Mary Amiti

Federal Reserve Bank of New York

Patrick McGuire

Bank for International Settlements (BIS)

David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 6 versions of this paper

Date Written: June 2017

Abstract

What is the role for supply and demand forces in determining movements in international banking flows? Answering this question is crucial for understanding the international transmission of financial shocks and formulating policy. This paper addresses the question by using the method developed in Amiti and Weinstein (forthcoming) to exactly decompose the growth in international bank credit into common shocks, idiosyncratic supply shocks and idiosyncratic demand shocks for the period 2000-2016. A striking feature of the global banking flows data can be characterized by what we term the "Anna Karenina Principle": all healthy credit relationships are alike, each unhealthy credit relationship is unhealthy in its own way. During non-crisis years, bank flows are well-explained by a common global factor and a local demand factor. But during times of crisis flows are affected by idiosyncratic supply shocks to a borrower country's creditor banks. This has important implications for why standard models break down during crises.

JEL Classification: F34, G01, G21

Suggested Citation

Amiti, Mary and McGuire, Patrick M. and Weinstein, David E., Supply- and Demand-Side Factors in Global Banking (June 2017). CEPR Discussion Paper No. DP12091. Available at SSRN: https://ssrn.com/abstract=2988849

Mary Amiti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Patrick M. McGuire

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

420 W. 118th Street
MC 3308
New York, NY 10027
United States
212-854-6880 (Phone)
212-854-8059 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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