by Victoria Nuguer
Banco de México
I develop a two-country DSGE model with global banks (financial intermediaries in one country lend to banks in the other country). Banks are financially constrained on how much they can borrow from households. The main goal is to obtain a framework that captures the international transmission of a financial crisis through the balance sheet of the global banks as well as to explain the insurance mechanism of the international asset market. A negative shock to the value of capital in one country generates a global financial crisis through the international interbank market. Unconventional credit policies help to mitigate the effects of a financial disruption. The policies help to improve domestic consumers' welfare. The non-cooperative equilibrium yields both central banks intervening.
JEL Codes: G01, E44, F40, G21.
Full article (PDF, 54 pages, 1231 kb)
Discussion by Robert Kollmann
Appendix