No empirical evidence has yet emerged for the existence of a robust positive relationship between financial openness and economic growth. This paper argues that a key reason for the elusive evidence is the presence of a time-varying relationship between openness and growth over time: countries...

We assess monetary convergence preceding the implementation of the European Monetary Union (EMU) through Kalman filtering estimates of the risk premium of eleven forward exchange rates of European and non-European currencies. Since all participating currencies are in effect identical from...

The academic literature has so far little to say about the underlying causes of the large structural asset and liability imbalances of emerging markets that frequently contributed to financial crises. The aim of the paper is to contribute to filling this gap by proposing a theoretical model that...

We study the effect of financial distress in foreign parent banks on local SME financing in 14 central and eastern European countries during the early stages of the 2007-2008 financial crisis. We use survey data on applicant and non-applicant firms that enable us to disentangle effects driven by...

This paper uses the co-incidence of extreme shocks to banksu0092 risk to examine within country and across country contagion among large EU banks. Banksu0092 risk is measured by the first difference of weekly distances to default and abnormal returns. Using Monte Carlo simulations, the paper...

This paper analyzes cooperation between sovereign national authorities in the supervision and regulation of a multinational bank. We take a political economy approach to regulation and assume that supervisors maximize the welfare of their own country. The communication between the supervisors is...

We identify the effect of financial integration on international business cycle synchronization, by utilizing a confidential database on banks’ bilateral exposure and employing a country-pair panel instrumental variables approach. Countries that become more integrated over time have less...

This paper develops a general equilibrium model to analyze the link between financial imbalances and financial crises. The model features an interbank market subject to frictions and where two equilibria may (co-)exist. The normal times equilibrium is characterized by a deep market with highly...

A central puzzle in international finance is that real exchange rates are volatile and, in stark contradiction to effcient risk-sharing, negatively correlated with cross-country consumption ratios. This paper shows that incomplete asset markets and a low price elasticity of tradables can account...

It is commonly thought that an open economy can accommodate output shocks through either exchange rate or real sector adjustments. We formalise this notion by incorporating labour market rigidities into an “escape clause” model of currency crises. We show that the absence of structural...