Financial intermediation, resource allocation, and macroeconomic interdependence
Abstract
During the first decade of the euro, southern countries experienced a boom-bust cycle in bank lending, non-tradable sector growth, and capital inflows. I develop a quantitative, open economy model of banking that is consistent with the banks’ behavior in credit allocation and foreign borrowing observed in Spanish data. I illustrate how movements in the frictions of cross-border deposits generate an endogenous asymmetric allocation of bank credit toward non-traded sectors, while producing a persistent and climbing current account deficit. A common central bank’s unconventional policies in response to sudden stops are successful at ameliorating the downturn.
Citation
Ozhan , G K 2020 , ' Financial intermediation, resource allocation, and macroeconomic interdependence ' , Journal of Monetary Economics , vol. 115 , pp. 265-278 . https://doi.org/10.1016/j.jmoneco.2019.07.001
Publication
Journal of Monetary Economics
Status
Peer reviewed
ISSN
0304-3932Type
Journal article
Collections
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