What is the major determinant of cross-border banking flows? |
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| Institution: | 1. Adam Smith Business School, University of Glasgow, UK;2. Faculty of Engineering, Information and Systems, University of Tsukuba, Japan;1. Dipartimento di Economia, Metodi Quantitivi e Strategie di Impresa, Università degli Studi di Milano Bicocca, Piazza Ateneo Nuovo 1, Milano 20126, Italy;2. Hankamer School of Business, Baylor University, One Bear Place #98003, Waco, TX 76798, United States;1. Technische Universitaet Dresden, Chair of International Monetary Economics, Helmholtzstrasse 10, 01069 Dresden, Germany;2. Halle Institute for Economic Research (IWH) - Member of the Leibniz Association, Kleine Maerkerstrasse 8, 06108 Halle (Saale), Germany |
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| Abstract: | This study examines the major determinant of cross-border credit flows through global banks across 70 countries. Employing a Bayesian dynamic latent factor model, we decompose volatilities of banking flows into the contribution of a global common factor, regional common factor, and country-specific factor. The results indicate that the global and regional common factor explains about 40–50 percent of volatility in overall cross-border banking flows. In particular, the contribution of the global common factor increased in the 2000s. Simultaneously, main determinants are largely heterogeneous across countries: this implies that the desirable policy response to credit inflows may differ for each host country. |
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| Keywords: | International capital flows Global banking Bayesian estimation C1 F3 |
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