The macro-financial effects of international bank lending on emerging markets

We provide novel empirical evidence on the effects of cross-border bank lending emerging market economies' (EMEs) macro-financial conditions. identify causal by leveraging heterogeneity in size distribution bilateral to construct granular instrumental variables for aggregate 22 EMEs. Cross-border credit causes higher domestic activity EMEs and looser financial Financial condition indices ease, nominal real effective exchange rates appreciate, sovereign corporate spreads narrow, interest fall, housing prices increase. Similarly, grows, GDP expands, imports rise. Using a simple model, we motivate our instrument show how commonly used instruments that correlate with global conditions (e.g. cycle) can yield biased estimates. find an amplification bias, which is consistent prominent role risk perceptions international spillovers.