Financial globalization, financial crises and contagion

Two observations suggest that financial globalization played an important role in the recent financial crisis. First, more than half of the rise in net borrowing of the U.S. non-financial sectors since the mid-1980s has been financed by foreign lending. Second, the collapse of the U.S. housing and m...

Full description

Saved in:
Bibliographic Details
Published inJournal of monetary economics Vol. 57; no. 1; pp. 24 - 39
Main Authors Mendoza, Enrique G., Quadrini, Vincenzo
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 2010
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Monetary Economics
Subjects
Borrowing
Contagion
Credit systems
Economic crisis
Economic models
Financial crises
Financial crisis
Financial development
Financial globalization
Financial globalization Financial crises Contagion Financial development U.S. crisis
Financial institutions
Financial intermediaries
Globalization
Housing
International integration
Securities issues
Studies
U.S. crisis
United States > US
U.S. crisis
Financial globalization
Contagion
Financial crises
Financial development
Online AccessGet full text

Cover

More Information
Summary:Two observations suggest that financial globalization played an important role in the recent financial crisis. First, more than half of the rise in net borrowing of the U.S. non-financial sectors since the mid-1980s has been financed by foreign lending. Second, the collapse of the U.S. housing and mortgage-backed-securities markets had worldwide effects on financial institutions and asset markets. Using an open-economy model where financial intermediaries play a central role, we show that financial integration leads to a sharp rise in net credit in the most financially developed country and to large asset price spillovers of country-specific shocks to bank capital. The impacts of these shocks on asset prices are amplified by bank capital requirements based on mark-to-market.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2009.10.009