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American Economic Journal: Macroeconomics: Vol. 5 No. 3 (July 2013)

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International Contagion through Leveraged Financial Institutions

Article Citation

van Wincoop, Eric. 2013. "International Contagion through Leveraged Financial Institutions." American Economic Journal: Macroeconomics, 5(3): 152-89.

DOI: 10.1257/mac.5.3.152

Abstract

The 2008 –2009 financial crises, while originating in the United States, witnessed a drop in asset prices and output that was at least as large in the rest of the world. We investigate, in the context of a simple two-country model, whether this could have been the result of transmission through leveraged financial institutions. The paper highlights what the various transmission mechanisms associated with balance sheet losses are. For realistic parameters we find that the model cannot account for the global nature of the crisis, both in terms of the size of the impact and the extent of transmission.

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Authors

van Wincoop, Eric (U VA)

JEL Classifications

E32: Business Fluctuations; Cycles
E44: Financial Markets and the Macroeconomy
F44: International Business Cycles
G01: Financial Crises
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages

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American Economic Journal: Macroeconomics


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