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No Pain, No Gain. Multinational Banks in the Business Cycle

Author

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  • Qingqing Cao

    (Michigan State University)

Abstract
We study the role of multinational banks in the propagation of business cycles in host countries. In our economy, multinational banks can transfer liquidity across borders through internal capital markets. However, their scarce knowledge of local firms' collateral hinders their allocation of liquidity to firms. We find that, through the interaction between the "liquidity origination" advantage and the "liquidity allocation" disadvantage, multinational banks can act as a short-run stabilizer in the immediate aftermath of domestic liquidity shocks but be a drag on the subsequent recovery. Structural and cyclical policies can ameliorate the trade-off induced by the presence of multinational banks.

Suggested Citation

  • Qingqing Cao, 2018. "No Pain, No Gain. Multinational Banks in the Business Cycle," 2018 Meeting Papers 1059, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1059
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    References listed on IDEAS

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