Working Paper: NBER ID: w19038
Authors: Valentina Bruno; Hyun Song Shin
Abstract: We investigate global factors associated with cross-border capital flows. We formulate a model of gross capital flows through the international banking system and derive a closed form solution that highlights the leverage cycle of global banks as being a prime determinant of the transmission of financial conditions across borders. We then test the predictions of our model in a panel study of 46 countries and find that global factors dominate local factors as determinants of banking sector capital flows.
Keywords: capital flows; cross-border banking; global liquidity; bank leverage
JEL Codes: F32; F34; F36; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| global bank leverage (F65) | crossborder capital flows (F32) |
| change in global bank leverage (F65) | crossborder capital flows (F32) |
| book equity of global banks (F65) | crossborder capital flows (F32) |
| global supply push factors (F29) | crossborder capital flows (F32) |
| VIX index of implied volatility (G13) | crossborder capital flows (F32) |