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The Rise of Regional Financial Cycle and Domestic Credit Markets in Asia

Banti, Chiara and Bose, Udichibarna (2021) The Rise of Regional Financial Cycle and Domestic Credit Markets in Asia. Working Paper. Essex Finance Centre Working Papers, Colchester. (Unpublished)

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Abstract

This paper documents the emergence of a regional financial cycle in Asia, evidenced by commonality in regional bank flows, and its impact on domestic credit. Using a dataset of 24,169 non-financial Indian firms for the period 2001-2019, we establish that the regional financial cycle has a positive and significant impact on domestic corporate debt, as opposed to an insignificant effect on foreign currency corporate debt, after controlling for the global financial cycle. We find that both interbank markets and monetary policy conditions in the region act as transmission channels for this effect. We show that transparent firms which have lower monitoring costs are relatively more exposed to the regional financial cycle, suggesting that affiliates of foreign banks play an important role. However, the exposure of domestic credit markets reduces once regulators institute more stringent policy actions such as macroprudential policies, selective capital controls and floating currency regimes.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Regional financial cycle; domestic credit markets; macroprudential policies; capital controls; emerging markets
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 19 Nov 2021 16:24
Last Modified: 06 Jan 2022 14:33
URI: http://repository.essex.ac.uk/id/eprint/31556

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