Capital Flows, Cross-Border Banking and Global Liquidity∗
نویسنده
چکیده
This paper develops a model of global liquidity with international banks as the carriers of liquidity conditions across borders. Global banks raise wholesale funding from financial centers which is deployed globally through centralized portfolio allocation decisions from headquarters. As the shadow value of bank funding is equalized across regions, permissive credit conditions in financial centers are transmitted across borders. We derive closedform solutions for banking sector capital flows and domestic private credit in the recipient economies and find empirical support for the key predictions. ∗Preliminary version. We thank Daniel Lewis and Linda Zhao for research assistance.
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