We study the effect of financial integration (through banks) on the transmission of international business cycles. In a sample of 20 developed countries between 1978 and 2009 we find that, in periods without financial crises, increases in bilateral banking linkages are associated with more divergent output cycles. This relation is significantly weaker during financial turmoil periods, suggesting that financial crises induce co-movement among more financially integrated countries. We also show that countries with stronger, direct and indirect, financial ties to the U.S.
Global Banks and Crisis TransmissionSebnem Kalemli-Ozcan, Elias Papaioannou and Fabrizio Perri ,
2( 89 )
Journal of International Economics