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International Spillovers and Local Credit Cycles

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

NBER Working Paper No. 23149
Issued in February 2017, Revised in October 2019
NBER Program(s):Economic Fluctuations and Growth Program, International Finance and Macroeconomics Program, Monetary Economics Program

This paper studies the transmission of the Global Financial Cycle (GFC) to domestic credit market conditions in a large emerging market, Turkey, over the years 2003-13. Matching administrative data covering the universe of corporate loan transactions to bank balance sheets, we document four facts: (1) an easing in global financial conditions leads to lower borrowing costs and an increase in local lending; (2) domestic banks that are more exposed to international capital markets transmit the GFC locally; (3) the fall in borrowing costs is driven by a failure in uncovered interest rate parity (UIP), where the UIP risk premium comoves with the GFC over time; (4) data on posted collateral for new loan issuances show that collateral constraints do not relax during the boom phase of the GFC.

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Document Object Identifier (DOI): 10.3386/w23149

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