Cross-Border Credit Intermediation and Domestic Liquidity Provision in a Small Open Economy
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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. 2018/202
Subject:
Commercial banks Credit Domestic credit Financial institutions Financial services Investment banking Labor Money Self-employment
English
Publication Date:
September 11, 2018
ISBN/ISSN:
9781484373354/1018-5941
Stock No:
WPIEA2018202
Pages:
50
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