Cross-country Spillovers in Interbank Liquidity Crises
Date
2023-10-31
Authors
Hasan, Mohammad
Major Professor
Advisor
Committee Member
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Journal Issue
Series
23008
Department
Abstract
Financially integrated economies observe a cross-country credit boom prior to financial recessions and a bust afterwards. This paper presents a two-country real business cycle model with banking sector where privately known intermediation efficiency of banks make them heterogeneous and gives rise to an interbank market. Overaccumulation of assets or low productivity in one country may lead to credit freeze in both financially integrated countries due to the existence of moral hazard and asymmetric information in the interbank market. A “sail together” financial integration may go into a “sink together” interbank credit freeze.
Comments
JEL Classification: E44, F34, F41, G01, G15, G21. Length: 42 pages. Original Release Date: October 31, 2023. Copyright 2023, The Authors.