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IMF Economic Review

, Volume 67, Issue 1, pp 61–108 | Cite as

International Bank Flows and the Global Financial Cycle

  • Mary AmitiEmail author
  • Patrick McGuire
  • David E. Weinstein
Research Article
  • 66 Downloads

Abstract

What is the role for supply and demand forces in determining movements in international banking flows? And what role might a common factor—the global financial cycle highlighted by Rey (Dilemma not trilemma: the global financial cycle and monetary policy independence, 2018) and others—play in movements in these flows? Answering these questions is crucial for understanding the international transmission of financial shocks and formulating policy. This paper addresses them by using the method developed in Amiti and Weinstein (J Polit Econ 126(2):525–587, 2018) to exactly decompose the growth in international bank credit into common shocks, idiosyncratic supply shocks and idiosyncratic demand shocks for the period 2000–2017. A striking feature of the global banking flows data can be characterized by what we term the “Anna Karenina Principle”: all healthy credit relationships are alike, and each unhealthy credit relationship is unhealthy in its own way. During non-crisis years, bank flows are well explained by a common global factor. But during times of crisis, flows are affected by idiosyncratic demand shocks to borrower countries and by supply shocks to their creditor banks. That is, the importance of the common component seems to vary over time. This has important implications for why standard econometric models break down during crises.

JEL Classification

F34 G01 G21 

Notes

Acknowledgements

The authors thank Jakub Demski and Scott Marchi for excellent research assistance and thank Mark Carlson, Linda Goldberg, Sebnem Kalemli-Ozcan, Catherine Koch, Bruno Tissot, Philip Wooldridge, participants at the 3rd BIS-CGFS workshop on “Research on global financial stability: the use of the BIS international and financial statistics” (7 May 2016), participants at the BIS-Bank Negara Malaysia conference on “Financial Systems and the Real Economy (18–19 October 2016, Kuala Lumpur), seminar participants at De Nederlandsche Bank (20 September 2016) and three anonymous referees for comments and discussion. The views expressed in this paper are those of the authors and not necessarily those of the BIS, the Federal Reserve Bank of New York or the Federal Reserve System.

Supplementary material

41308_2018_72_MOESM1_ESM.xlsx (323 kb)
Supplementary material 1 (XLSX 322 kb)

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Copyright information

© International Monetary Fund 2018

Authors and Affiliations

  • Mary Amiti
    • 1
    Email author
  • Patrick McGuire
    • 2
  • David E. Weinstein
    • 3
  1. 1.Federal Reserve Bank of New YorkNew YorkUSA
  2. 2.Bank for International SettlementsBaselSwitzerland
  3. 3.Columbia UniversityNew YorkUSA

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