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Global Banks and Systemic Debt Crises

NBER Working Paper Series, 2021-06

Copyright National Bureau of Economic Research, Inc. Jun 2021 ;ISSN: 0898-2937 ;DOI: 10.3386/w28892

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  • Title:
    Global Banks and Systemic Debt Crises
  • Author: Morelli, Juan Martin ; Ottonello, Pablo ; Perez, Diego J
  • Subjects: Asset Pricing ; Economic Fluctuations and Growth ; Economic theory ; Global economy ; International finance ; International Finance and Macroeconomics ; International lending ; Monetary Economics
  • Is Part Of: NBER Working Paper Series, 2021-06
  • Description: We study the role of global financial intermediaries in international lending. We construct a model of the world economy, in which heterogeneous borrowers issue risky securities purchased by financial intermediaries. Aggregate shocks transmit internationally through financial intermediaries' net worth. The strength of this transmission is governed by the degree of frictions intermediaries face in financing their risky investments. We provide direct empirical evidence on this mechanism showing that around Lehman Brothers' collapse, emerging-market bonds held by more distressed global banks experienced larger price contractions. A quantitative analysis of the model shows that global financial intermediaries play a relevant role in driving borrowing-cost and consumption fluctuations in emerging-market economies, during both debt crises and regular business cycles. The portfolio of financial intermediaries and the distribution of bond holdings in the world economy are key to determine aggregate dynamics.
  • Publisher: Cambridge: National Bureau of Economic Research
  • Language: English
  • Identifier: ISSN: 0898-2937
    DOI: 10.3386/w28892
  • Source: Alma/SFX Local Collection
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