Cross-Border Credit Intermediation and Domestic Liquidity Provision in a Small Open Economy

Author/Editor:

Thorvardur T. Olafsson

Publication Date:

September 11, 2018

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper develops a small open economy model where global and domestic liquidity is intermediated to the corporate sector through two financial processes. Investment banks intermediate cross-border credit through interlinked debt contracts to entrepreneurs and commercial banks intermediate domestic savings to liquidity constrained final good producers. Both processes are needed to facilitate development of key production inputs. The model captures procyclical investment bank leverage dynamics, global liquidity spillovers, domestic money market pressures, and macrofinancial linkages through which shocks propagate across the two processes, affecting spreads and balance sheets, as well as the real economy through investment and working capital channels.

Series:

Working Paper No. 18/202

Subject:

English

Publication Date:

September 11, 2018

ISBN/ISSN:

9781484373354/1018-5941

Stock No:

WPIEA2018202

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

50

Please address any questions about this title to publications@imf.org