Working papers

Global European banks and dollar (co-)dependence: how housing markets became internationally synchronized

with Torsten Ehlers (Bank for International Settlements, BIS) and Mathias Hoffmann (University of Zurich). BIS Working Paper (897), 2020. Available here.

We show that US net capital inflows drive the international synchronization of house price growth through the topography of the global banking network. US net capital inflows improve US dollar funding conditions of non-US and specifically European global banks, allowing them to increase leverage by borrowing in US dollars and to expand foreign interbank lending to borrowing countries. This induces a synchronization of lending across borrowing countries, which translates into a synchronization of mortgage credit growth and ultimately house price growth. Importantly, this synchronization is driven by non-US global banks' common but heterogeneous exposure to US dollar funding conditions, not by the common exposure of borrowing countries to non-US global banks. Our results therefore identify a novel channel of international transmission of US dollar funding conditions: As these conditions vary over time, borrowing country pairs whose non-US global creditor banks are more dependent on US dollar funding exhibit higher house price synchronization.

Presentations: CEBRA Annual Meeting 2019, International Monetary Fund (Research Department), Bank for International Settlements (BIS), 4th CGFS-BIS Workshop, Federal Reserve Board International Banking and Finance, SNB-BIS Research Workshop, Banca d'Italia, European Stability Mechanism, CBI-ECB-IMTCD Workshop on International Capital Flows and Exchange Rates, Swiss Society of Economics and Statistics Annual Congress 2019, 24th Spring Meeting of Young Economists, Gerzensee Conference 2019, University of Zurich, Graduate Institute Geneva

Media coverage: BCC blog

Tracking foreign capital: the effect of capital inflows on bank lending in the UK

with Christiane Kneer (Bank of England), Bank of England Working Paper (804), 2019. Available here.

This paper examines how UK banks channel capital inflows to the individual sectors of the domestic economy and to overseas residents. Information on the source country of foreign capital deposited with UK banks allows us to construct a novel Bartik instrument for capital inflows. Our results suggest that foreign funds boost bank lending to the domestic economy. This result is due to the positive effect of capital inflows on bank lending to non-financial firms and to other domestic financial institutions. Banks do not channel capital inflows directly to households or the public sector. Much of the foreign capital is also channeled back abroad, reflecting the role of the UK as a global financial center.

Presentations: Bank of Canada Conference on Capital Flows in Advanced Economies, DIW Finance and Development Workshop, Belgrade Young Economists Conference, Bank of England Financial Stability Department, Bank of England, Graduate Institute Geneva

Media coverage: Bank Underground

Borrowers beware of common lenders: decomposing house price spillovers through global banks

What is driving international spillovers of house price shocks? I show that common global lenders facilitate these spillovers beyond direct spillovers among borrowing countries. Global lenders incur losses when banks in borrowing countries experience losses in response to negative house price shocks. The effect on house prices in other borrowing countries depends on whether global lenders mitigate the losses by deleveraging or by reallocating their portfolios towards safer borrowing countries (flight to safety). I build a theoretical model to disentangle these two spillover channels. I test the model empirically and find that the portfolio reallocation effect exceeds the deleveraging effect, implying an increase in house prices in borrowing countries other than those hit by the negative house price shock. Selected supply side macroprudential measures can shield borrowing countries from these spillovers. The findings highlight the importance for borrowing countries to monitor their exposure to common global lenders with lending portfolios susceptible to house price shocks.

Presentations: Graduate Institute Geneva

Work in Progress

Financial conditions spillovers through currency networks

with Torsten Ehlers (BIS) and Előd Takáts (Corvinus University)

Spinning sombrero: spillovers and spillbacks of advanced economies’ monetary policies through Mexican banks’ international lending

with Caterina Rho (European Commission, Joint Research Centre)

Investment Funds, REITs and the making of a global commercial real estate cycle

with Nathan Converse (Federal Reserve Board)