Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265229 
Year of Publication: 
2021
Series/Report no.: 
ESRB Working Paper Series No. 128
Publisher: 
European Systemic Risk Board (ESRB), European System of Financial Supervision, Frankfurt a. M.
Abstract: 
This paper explores the transmission of non-capital shocks through banking networks. We develop a methodology to construct non-capital (idiosyncratic) shocks, using labor productivity shocks to large firms. We document a change in the relationship between foreign idiosyncratic shocks and domestic economic growth between 1978 and 2000. Contemporaneous changes in banking integration drive this phenomenon as geographically diversified banks divert funds away from economies experiencing negative shocks towards other unaffected economies. Our GIV estimates suggest that a 1% increase in bank loan supply is associated with a 0.05-0.26 pp increase in economic growth. Lastly, this can potentially explain the Great Moderation.
Subjects: 
financial intermediation
growth
deregulation
cross-border spillovers
idiosyncraticshocks
credit
the Great Moderation
JEL: 
E32
E44
F36
G21
G28
O47
R11
R12
Persistent Identifier of the first edition: 
ISBN: 
978-92-9472-235-5
Document Type: 
Working Paper

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