Working Paper: CEPR ID: DP18643
Authors: Luis Catao; Jan Ditzen; Daniel Marcel Te Kaat
Abstract: We show that fluctuations in the ratio of non-core to core funding in the banking systems of advanced economies are driven by a handful of global factors of both real and financial natures, with country-specific factors playing no significant roles. Exchange rate flexibility helps insulate the non-core to core ratio from such global factors but only significantly so outside periods of major global shocks, as in 2007-2009 and 2020.
Keywords: global financial cycle; bank funding; Mundellian trilemma
JEL Codes: F32; F34; G15; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| global factors (F69) | noncore to core funding ratios (H19) |
| exchange rate flexibility (F31) | insulation against global factors (F69) |
| fixed exchange rate regimes (F33) | susceptibility to global influences on bank funding ratios (F65) |
| VIX and US interest rates (E43) | noncore to core funding ratios (H19) |
| unobservable macroeconomic forces (E19) | noncore to core funding ratios (H19) |