American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Banking Networks and Economic Growth: From Idiosyncratic Shocks to Aggregate Fluctuations
American Economic Journal: Macroeconomics
(pp. 332–77)
Abstract
This paper investigates the role of banking networks in the transmission of shocks across borders. Combining banking deregulation in the United States with state-level idiosyncratic demand shocks, we show that geographically diversified banks reallocate funds from economies experiencing negative shocks to unaffected regions. Our findings indicate that in the presence of idiosyncratic shocks, financial integration reduces business cycle comovement and synchronizes consumption patterns. Our findings contribute to explaining the Great Moderation and provide empirical support for theories that predict that banking integration facilitates the insurance of region-specific risk and the efficient allocation of resources as markets become more complete.Citation
Kundu, Shohini, and Nishant Vats. 2026. "Banking Networks and Economic Growth: From Idiosyncratic Shocks to Aggregate Fluctuations." American Economic Journal: Macroeconomics 18 (2): 332–77. DOI: 10.1257/mac.20220153Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- F65 Economic Impacts of Globalization: Finance
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- L14 Transactional Relationships; Contracts and Reputation; Networks
- R11 Regional Economic Activity: Growth, Development, Environmental Issues, and Changes