ISBN: 3540406379
TITLE: Globalization of Financial Markets
AUTHOR: Kieler
TOC:

1 Motivation 1
2 Integration of Financial Markets: Stylized Facts 10
2.1 Deregulation of Financial Markets: Europe versus the United States 10
2.2 Measures of Financial Integration 14
2.2.1 Interest Parity Tests 15
2.2.2 Saving-Investment Correlations 19
2.2.3 Stock Market Linkages 23
2.2.4 Home Bias 23
2.2.5 Degree of Regional Risk Sharing 30
2.3 Gross versus Net Capital Flows 31
2.3.1 Aggregate Capital Flows 31
2.3.2 Structure of Capital Flows 32
2.4 Banking Sector Openness 38
2.4.1 Foreign Ownership 39
2.4.2 Cross-Border Lending and Borrowing 43
2.4.3 Effects on Bank Profitability 48
2.4.4 Comparison to the United States 49
2.5 Summary 55
3 The Economics of International Banking 59
3.1 A Portfolio Model of Cross-Border Banking 59
3.1.1 Related Literature 60
3.1.2 Baseline Model 61
3.1.3 Portfolio Decisions and the Euro 67
3.1.4 Implications for Banking Risks 70
3.1.5 Foreign Direct Investment of Banks 77
3.2 Empirical Determinants of Foreign Banking 78
3.2.1 Foreign Direct Investment 78
3.2.2 Cross-Border Lending and Borrowing 88
3.3 Competition between Domestic and Foreign Banks 92
3.3.1 Theoretical Framework 93
3.3.2 Foreign Banks in Germany and in the United States: Stylized Facts 98
3.3.3 Do Domestic and Foreign Banks Service the Same Market Segments? 101
3.4 Summary 110
4 Information Costs versus Regulations as Causes for Financial Segmentation 115
4.1 The Costs of International Banking 117
4.2 Empirical Evidence 122
4.2.1 Panel Data 128
4.2.2 Robustness Tests 135
4.2.3 Cross-Section Data 136
4.2.4 Robustness Tests 144
4.3 Implications for Capital Flows to Transition Economies 147
4.4 Distance and International Banking 150
4.4.1 Distance and the Home Bias 159
4.4.2 Discussion of Results 161
4.5 Summary 165
4.6 Appendix: Panel Cointegration 168
4.6.1 The Issue 168
4.6.2 Panel Unit Root Tests 169
4.6.3 Testing for Cointegration and Inference in Panel Models 172
4.6.4 Concluding Remarks 176
5 The Impact of Financial Segmentation on Transmission Mechanisms 180
5.1 Stylized Facts 182
5.1.1 Capital Mobility 183
5.1.2 Financial Structures 183
5.2 The Baseline Model 185
5.2.1 Market Structures 186
5.2.2 Households 187
5.2.3 Firms 188
5.2.4 Banks and International Capital Flows 189
5.2.5 Aggregate Demand 189
5.3 Equilibrium and Comparative Statics 190
5.3.1 Financial Market Equilibrium 190
5.3.2 Output Market Equilibrium 194
5.3.3 Comparative Statics 194
5.4 Transmission Effects of International Lending: Evidence from German Data 198
5.4.1 Earlier Evidence 199
5.4.2 Foreign Lending of German Banks 201
5.4.3 Short-Run Dynamics 219
5.5 Summary 222
6 Summary of Results and Policy Implications 224
References 234
Index 252
END
