International Spillovers and Local Credit Cycles

Yusuf Soner Baskaya, Julian di Giovanni, Sebnem Kalemli-Ozcan, Mehmet Fatih Ulu

NBER Working Paper No. 23149
Issued in February 2017, Revised in November 2017
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics, Monetary Economics

Most capital inflows are intermediated by domestic banks. We show that such intermediation transmits advanced country shocks into emerging markets. Using firm-bank-loan level data from Turkey at a quarterly frequency between 2003{2013, we estimate the causal impact of capital inflows on domestic credit growth and borrowing costs. The key mechanism is a failure of UIP, where a decline in global uncertainty reduces country risk and pushes capital flows into Turkey, and domestic banks intermediate these flows towards firms at lower lending rates. We quantify a large interest rate differential between foreign and local currency borrowing at the firm level, where foreign currency borrowing is cheaper on average. This differential goes down during low global uncertainty periods since during these exogenous capital inflow episodes local currency borrowing becomes cheaper. Our estimates explain 43% of observed aggregate credit growth, where bank heterogeneity in terms of banks' international funding explains the majority of this aggregate impact. Our identification strategy relies on (i) exogenous movements in global uncertainty, as proxied by VIX; and (ii) within-firm and within-firm-bank variations of loan amounts and lending rates over time. We rule out alternative explanations driving our results, such as foreign bank lending or corporates borrowing internationally, exchange rate driven balance sheet shocks, and the relaxation of firm-level collateral constraints arising from capital inflows.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23149

Users who downloaded this paper also downloaded* these:
Avdjiev, Hardy, Kalemli-Ozcan, and Serven w23116 Gross Capital Flows by Banks, Corporates and Sovereigns
Baskaya, di Giovanni, Kalemli-Ozcan, Peydró, and Ulu Capital Flows and the International Credit Channel
House, Proebsting, and Tesar w23147 Austerity in the Aftermath of the Great Recession
Carrillo, Mendoza, Nuguer, and Roldán-Peña w23151 Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies
Demirer, Diebold, Liu, and Yilmaz w23140 Estimating Global Bank Network Connectedness
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us