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On cross-border bank credit and the U.S. financial crisis transmission to equity markets

Yan, C.; Phylaktis, K.; Fuertes, A.

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Authors

C. Yan

K. Phylaktis

A. Fuertes



Abstract

This paper examines the role played by cross-border equity, bond and bank credit flows versus international trade in the transmission of the U.S. financial crisis to equity markets worldwide. We estimate vector autoregressive models with exogenous global factors using monthly data on 36 emerging and developed countries. The results from an eclectic methodology that includes causality tests, generalized impulse responses and forecast error variance decompositions indicate that the crisis is mostly transmitted through bank credit rather than portfolio flows and international trade. The results are robust to altering the exogenous versus endogenous vectors of variables, to measuring equity prices in U.S. dollars or local currency, to averaging the data across countries versus averaging the parameters from individual country estimation, and to redefining the start date of the crisis. The findings endorse the use of banking regulation and capital controls as part of the policy toolkit to limit financial vulnerability.

Citation

Yan, C., Phylaktis, K., & Fuertes, A. (2016). On cross-border bank credit and the U.S. financial crisis transmission to equity markets. Journal of International Money and Finance, 69, 108-134. https://doi.org/10.1016/j.jimonfin.2016.06.014

Journal Article Type Article
Acceptance Date Jun 24, 2016
Online Publication Date Jul 4, 2016
Publication Date Dec 1, 2016
Deposit Date Jun 24, 2016
Publicly Available Date Jan 4, 2018
Journal Journal of International Money and Finance
Print ISSN 0261-5606
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 69
Pages 108-134
DOI https://doi.org/10.1016/j.jimonfin.2016.06.014
Public URL https://durham-repository.worktribe.com/output/1409051

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