Risky banks and macro-prudential policy for emerging economies

We develop a two-country DSGE model with global banks to analyze the role of cross-border banking flows on the transmission of a quality of capital shock in the United States to emerging market economies (EMEs). Banks face a moral hazard problem for borrowing from households. EME's banks might be risky: they can also be constrained to borrow from U.S. banks. A negative quality of capital shock in the United States generates a global financial crisis. EME's macroprudential policy that targets non-core liabilities makes the domestic economy resilient to the volatility of cross-border banking flows and makes EME's households better-off.

• Publication year

  2016

• Venue

  Review of economic dynamics (Print)

• Publication date

  2016-06-01

• Fields of study

  Business, Economics

• Identifiers
  DOI 10.1016/J.RED.2018.05.001
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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