Uncertainty and Cross-Border Banking Flows

January 5, 2018

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Format: Chicago

Sangyup Choi, and Davide Furceri. Uncertainty and Cross-Border Banking Flows, (USA: International Monetary Fund, 2018) accessed December 3, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

While global uncertainty—measured by the VIX—has proven to be a robust global “push” factor of international capital flows, there has been no systematic study assessing the role of country-specific uncertainty as a key (pull and push) factor of international capital flows. This paper tries to fill this gap in the literature by examining the effects of country-specific uncertainty shocks on cross-border banking flows using the confidential Bank for International Settlements Locational Banking Statistics data. The dyadic structure of this data allows to disentangle supply and demand factors and to better identify the effect of uncertainty shocks on cross-border banking flows. The results of this analysis suggest that: (i) uncertainty is both a push and pull factor that robustly predicts a decrease in both outflows (retrenchment) and inflows (stops); (ii) global banks rebalance their lending towards safer foreign borrowers from local borrowers when facing higher uncertainty; (iii) this rebalancing occurs only towards advanced economies (flight to quality), but not emerging market economies.

Subject: Balance of payments, Bank credit, Banking, Capital flows, Cross-border banking, Emerging and frontier financial markets, Financial markets, Financial services, Money, Stock markets

Keywords: Bank credit, Banking flow, Banking office, Capital flows, Cross-border banking, Cross-border banking flows, Cross-border claim, Cross-border lending, Emerging and frontier financial markets, Flight-to-quality, Global, Global bank, Lending activity, Portfolio rebalancing, Retrenchment, Stock markets, Sudden stops, Uncertainty, WP

Publication Details

Pages:

51
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/004
Stock No:

WPIEA2018004
ISBN:

9781484336793
ISSN:

1018-5941

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