Working Paper: NBER ID: w16836
Authors: Hyun Song Shin; Kwanho Shin
Abstract: Financial intermediaries borrow in order to lend. When credit is increasing rapidly, the traditional deposit funding (core liabilities) is supplemented with other funding (non-core liabilities). We explore the hypothesis that monetary aggregates reflect the size of non-core and core liabilities and hence convey information on the stage of the financial cycle. In emerging economies with open capital markets, non-core liabilities of the banking system take the form of short-term foreign exchange liabilities, increasing the vulnerability to the outbreak of "twin crises" where a liquidity crisis is compounded by a currency crisis.
Keywords: monetary aggregates; financial cycle; noncore liabilities; macroprudential policy
JEL Codes: E32; E44; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| noncore liabilities (G39) | financial cycle stage (E44) |
| financial cycle stage (E44) | noncore liabilities (G39) |
| noncore liabilities (G39) | bank lending behavior (G21) |
| bank lending behavior (G21) | riskier lending practices (G21) |
| noncore liabilities (G39) | vulnerability to financial crises (F65) |
| financial cycle stage (E44) | economic downturns (F44) |