Kiel Working Papers, Kiel Institute for World Economics
No 1254:
Macroeconomic Shocks and Foreign Bank Assets
Claudia M. Buch, Kai Carstensen and Andrea Schertler
Abstract: Changes in foreign asset holdings are one channel through
which agents adjust to macroeconomic shocks. In this paper, we test whether
foreign bank assets change as a result of domestic and foreign
macroeconomic shocks. We frame our empirical analysis in a standard new
open economy macro model in which financial markets are imperfectly
integrated. We test the implications of this model using dynamic panel
models for changes in foreign bank assets. We find evidence that nominal
interest rate differentials and inflation differentials drive changes in
foreign bank assets permanently, while growth rate differentials and
exchange rates have only a temporary effect.
Keywords: international banking, macroeconomic shocks; (follow links to similar papers)
JEL-Codes: F3,; F41; (follow links to similar papers)
40 pages, June 2005
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