TY  - JOUR
AU  - Mendoza,Enrique G.
AU  - Quadrini,Vincenzo
TI  - Financial Globalization, Financial Crises and Contagion
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15432
PY  - 2009
Y2  - October 2009
UR  - http://www.nber.org/papers/w15432
L1  - http://www.nber.org/papers/w15432.pdf
N1  - Author contact info:
Enrique G. Mendoza
Department of Economics
University of Maryland
College Park, MD 20742
Tel: 301/405-3845
Fax: 301/405-7835
E-Mail: mendozae@econ.umd.edu

Vincenzo Quadrini
Department of Finance and Business Economics
Marshall School of Business
University of Southern California
701 Exposition Boulevard
Los Angeles, CA 90089
Tel: 213/740-6521
Fax: 213/740-6650
E-Mail: quadrini@usc.edu
AB  - Two observations suggest that financial globalization played an important role in the recent financial crisis. First, more than half of the rise in net borrowing of the U.S. nonfinancial sectors since the mid 1980s has been financed by foreign lending. Second, the collapse of the U.S. housing and mortgage-backed-securities markets had worldwide effects on financial institutions and asset markets. Using an open-economy model where financial intermediaries play a central role, we show that financial integration leads to a sharp rise in net credit in the most financially developed country and leads to large asset price spillovers of country-specific shocks to bank capital. The impact of these shocks on asset prices are amplified by bank capital requirements based on mark-to-market.
ER  -