International Financial Contagion: The Role Of Banks

This paper provides an overview of recent theories of international financial contagion, with a focus on models in which the balance sheet constraints of global banks (and other financial institutions) are the key channel of international transmission. During the recent (2007-2009) financial crisis, GDP growth and stock markets collapsed simultaneously in most countries around the globe. Yet, the crisis was triggered by a financial shock in the US, namely an unanticipated fall in US house prices that led to massive mortgage loan defaults by US households, and thus impaired the health of US and foreign banks that had invested in the US mortgage market.

Provided by: Universite Libre de Bruxelles Topic: CXO Date Added: Jan 2011 Format: PDF

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