Foreign Currency Bank Funding and Global Factors

Posted: 22 May 2018

See all articles by Signe Krogstrup

Signe Krogstrup

National Bank of Denmark - Economics Department; Danmarks Nationalbank (The Central Bank of Denmark); IMF

Cédric Tille

Graduate Institute of International and Development Studies (HEI)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2018

Abstract

The literature on drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood. We revisit this question by focusing on financial intermediaries' funding flows in different currencies. A portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary's pre-existing currency exposure. Analysis of data on European banks' aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area.

Keywords: Capital Flows, cross-border transmission of shocks, currency mismatch, European bank balance sheets., push factors, Spillovers

JEL Classification: F32, F34, F36

Suggested Citation

Krogstrup, Signe and Tille, Cedric, Foreign Currency Bank Funding and Global Factors (May 2018). CEPR Discussion Paper No. DP12933, Available at SSRN: https://ssrn.com/abstract=3182393

Signe Krogstrup (Contact Author)

National Bank of Denmark - Economics Department ( email )

1093 Copenhagen
Denmark

Danmarks Nationalbank (The Central Bank of Denmark) ( email )

Havnegade 5
Copenhagen, 1093
Denmark

IMF ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Cedric Tille

Graduate Institute of International and Development Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

HOME PAGE: http://sites.google.com/site/cedrictilleheid/home

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