Banking Globalization and International Business Cycles

Transcription

1 Banking Globalization and International Business Cycles Kozo Ueda Bank of Japan May 26, 21 Ueda (BOJ) International CCC May 26, 21 1 / 25

2 Outline In the recent credit crisis, we observed Global downturns on the real and nancial sides Deterioration in nancial intermediaries (FIs) credit conditions I construct a DSGE model which explains those observations. Credit-constrained FIs which engage in cross-border lending Key to understanding the recent nancial crisis 1 FIs globalization 2 FIs net worth shock 3 FIs credit constraints Ueda (BOJ) International CCC May 26, 21 2 / 25

3 Related Literature and Stylized Facts 12 (25Q1=1) GDP 6 (25Q1=1) Cross border lending US Japan Europe Iceland Ireland Developing Countries 1 95 US Japan Euro area Iceland Ireland (25Q1=1) Investment US Japan Euro area Iceland Ireland (25Q1=1) US Japan Europe Ueda (BOJ) International CCC May 26, 21 3 / 25

4 (25M1=1) Stock prices NASDAQ NIKKEI FT (%) Corporate bond spreads (AA) US Japan Europe (25Q1=1) FIs' net worth (equities) US 9 Japan Euro area (%) Corporate bond spreads (BBB) US 7 Japan 6 Europe Ueda (BOJ) International CCC May 26, 21 4 / 25

5 Theoretical Studies on Bilateral Correlations (1) Correlation (quantity) puzzle International RBC model by Backus, Kehoe, and Kydland (1992) predicts a negative correlation. Suppose a productivity shock. It is e cient to increase I and L in the more productive country and reduce I and L in the less productive country.! Negative bilateral correlation. Ueda (BOJ) International CCC May 26, 21 5 / 25

6 Theoretical Studies on Bilateral Correlations (2) Frictions in the nancial markets resolve the puzzle. Baxter and Crucini (1995), Heathcote and Perri (22), Iacovielloa and Minetti (26), Faia (27), Dedola and Lombardo (29), and Devereux and Yetman (29). However, No explicit role of FIs. No e ect of banking globalization Unexplained movements other than GDP Ueda (BOJ) International CCC May 26, 21 6 / 25

7 (2) Macroeconomic E ects of FIs Empirical studies Declines of FIs net worth generate a macroeconomic downturn. Peek and Rosengren (1997, 2), Calomiris and Mason (23), Anari, Kolari and Mason (25), Ashcraft (25) Common lender e ect Kaminsky and Reinhart (2), and Van Rijckeghem and Weder (23) Ueda (BOJ) International CCC May 26, 21 7 / 25

8 Theoretical Studies Macroeconomic model with FIs credit frictions Bernanke and Blinder (1988), Goodfriend and McCallum (27), Van den Heuvel (28), Gerali, Neri, Sessa, and Signoretti (28), Dib (29), Gertler and Karadi (29), Gertler and Kiyotaki (21), Curdia and Woodford (29) Macroeconomic model with both FIs and entrepreneurial credit frictions Holmstrom and Tirole (1997) Hirakata, Sudo, and Ueda (29, 21). Bernanke, Gertler and Gilchrist (1999, hereafter BGG) s contracts become Chained Credit Contracts (CCC). Ueda (BOJ) International CCC May 26, 21 8 / 25

9 Contribution Develop a DSGE model with: Credit-constrained FIs and chained credit contracts Two countries: banking globalization and cross-border lending Explain business cycle synchronization For real and nancial variables E ect of banking globalization E ect of credit-constrained FIs Ueda (BOJ) International CCC May 26, 21 9 / 25

10 Model Ueda (BOJ) International CCC May 26, 21 1 / 25

11 Chained Credit Contracts (CCC, No banking globalization) Firms I R E QK Capital producers QK Entrepreneur j in bank i N F FI i N E Loan of QK N E Entrepreneurs balance sheet FIs balance sheet Loan of QK N F N E Investors QK QK N E QK N F N E QK N E N F N E Ueda (BOJ) International CCC May 26, / 25

12 CCC under Banking Globalization Banking globalization parameters τ E and τ F Exogenous (portfolio choice is not incorporated) They determine the allocation of nance between the home and foreign country. Investor Investor 1 τ F τ F τ F 1 τ F FI with N F FI with N F* 1 τ E τ E τ E 1 τ E Entrepreneur with N E Entrepreneur with N E* Ueda (BOJ) International CCC May 26, / 25

13 Credit Market Investors, FIs, and entrepreneurs make CCC. Hirakata, Sudo, and Ueda (29, 21) extending BGG (1999) Costly state veri cation (CSV) both for FIs and entrepreneurial idiosyncratic productivity ω F, ω E FIs and entrepreneurial net worths matter. Monopolistic FIs optimize the content of CCC so as to satisfy investors and entrepreneurial participation constraints. FIs specify ω F and ω E so that FIs (entrepreneurs) default if ω F < ω F (ω E < ω E ), and FIs (entrepreneurs) repay debts of ω F (ω E ) otherwise. Ueda (BOJ) International CCC May 26, / 25

14 Optimal Chained Credit Contract (CCC) Cost-of-funds (premiums) depend on four net worths. E t R E H s t+1 R N F N = E N F N E F,, QK H QK H Q KH, Q KH. Ueda (BOJ) International CCC May 26, / 25

15 Calibration The U.S. data suggests: Net worth is biased to entrepreneurial sector so that we have N F QK =.1 and N E QK =.5. Credit market parameters are calibrated. Banking globalization τ F and τ E (exogenous) Roughly, (τ E + τ F )/2 is.15 for the US,.1 for Japan, and.35 for the Euro area. Ueda (BOJ) International CCC May 26, / 25

16 Cost-of-Funds for Entrepreneurs Focus only on the credit market (not general equilibrium) 1.3 H R E 1.3 F R E 1.28 τ F =τ E = τ F =τ E = F N F /QK F N F /QK Ueda (BOJ) International CCC May 26, / 25

17 Goods Market Based on the two-country model of Backus, Kehoe, and Kydland (1992), and its sticky price extension by Clarida, Gali, and Gertler (22) Tradable two consumption goods Immobile labor and physical capital Calvo-type sticky prices Ueda (BOJ) International CCC May 26, / 25

18 Goods Market C (s t ) in H: C s t = (1 γ) 1/η C H s t (η 1)/η + γ 1/η C F s t (η 1)/η η/(η 1). γ : inverse of the home bias γ is.15 for US and Japan. Ueda (BOJ) International CCC May 26, / 25

19 Simulation Ueda (BOJ) International CCC May 26, / 25

20 FIs Net Worth Shock in H (1) Business cycle synchronization No synchronization without banking globalization (τ = ) Common lender e ect x 1 3 H GDP 2 x 1 4 F GDP x H Investment x H N F /QK x F Investment 4 2 x 1 4 F N F /QK 2 CCC τ=.1 CCC τ= 4 Ueda (BOJ) International CCC May 26, 21 2 / 25

21 FIs Net Worth Shock in H (2) 4 x 1 4 H premium 1.5 x 1 4 F premium x H Q 2.5 x Loan F I to H FI x F Q 1.5 Loan H FI to F E.1 CCC τ=.1 CCC τ=.15 Ueda (BOJ) International CCC May 26, / 25

22 FIs Net Worth Shock in H (3) No e ect in BGG x 1 3 H GDP x 1 4 F GDP x 1 3 H Investment 1.5 x 1 4 F Investment x H N F /QK x 1 4 F N F /QK 2 CCC τ=.1 BGG τ=.1 4 Ueda (BOJ) International CCC May 26, / 25

23 Predicted GDP Bilateral Correlations Globalization in FIs lending (τ E ) yields positive correlations. GDP correlation GDP correlation γ γ FIs net worth shock τ F τ E Technology shock τ F τ E CCC BGG Ueda (BOJ) International CCC May 26, / 25

24 What We Find Key to the recent nancial crisis FIs globalization FIs credit constraint FIs net worth shock As globalization intensi es, policy comes to have greater global impacts. Besides the dollar swap program, a reduction in policy rates and capital injection policy. Ueda (BOJ) International CCC May 26, / 25

25 Applications Foreign assets and global imbalances Various policies, such as pegged exchange rate policy, a currency swap program, capital injection policy, macroprudential policy Welfare changes when two countries with di erent nancial technology are interconnected with di erent nancial openness. More complex credit network Ueda (BOJ) International CCC May 26, / 25