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Financial Exposure and the International Transmission of Financial Shocks
Author(s) -
KAMBER GÜNEŞ,
THOENISSEN CHRISTOPH
Publication year - 2013
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12073
Subject(s) - openness to experience , business cycle , financial sector , economics , business , small open economy , financial accelerator , transmission (telecommunications) , international economics , monetary economics , financial system , finance , monetary policy , dynamic stochastic general equilibrium , macroeconomics , psychology , social psychology , electrical engineering , engineering
This paper analyzes the transmission mechanism of banking sector shocks in an international real business cycle model with heterogeneous bank sizes. We examine to what extent the financial exposure of the banking sector affects the transmission of foreign banking sector shocks. In our model, the more exposed domestic banks are to the foreign economy via lending to foreign firms, the greater are the spillovers from foreign financial shocks to the home economy. The model highlights the role of openness to trade and the dynamics of the terms of trade in the international transmission mechanism of banking sector shocks: spillovers from foreign banking sector shocks are greater the more open the home economy is to trade and the less the terms of trade respond to foreign shocks.