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
Rights
Copyright © 2019 Elsevier B.V. All rights reserved. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.jmoneco.2019.07.001
Collections
Items in the St Andrews Research Repository are protected by copyright, with all rights reserved, unless otherwise indicated.