NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Capital Flows, Cross-Border Banking and Global Liquidity

Valentina Bruno, Hyun Song Shin

NBER Working Paper No. 19038
Issued in May 2013
NBER Program(s):   CF   IFM

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.

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Document Object Identifier (DOI): 10.3386/w19038

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