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Abstract

This dissertation studies the implications of the global financial integration through capital flows and global banks for the sectoral allocation of bank credit and the globalization of housing markets. The first chapter examines the effect of capital inflows on the sectoral allocation of bank credit in the UK. The results suggest that capital inflows boost bank lending to the domestic economy, notably to non-financial firms and to other financial institutions. Capital inflows are also channeled back abroad, reflecting the role of the UK as a global financial center. The second chapter shows that US net capital inflows drive the international synchronization of house price growth through the topography of the global banking network, and identifies a novel channel of the 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 a higher synchronization of house prices. The third chapter highlights that common global lenders are key vectors for the international propagation of house price shocks. The results show that negative house price shocks in some commonly exposed borrowing countries lead global banks to substitute away from lending to these countries in favor of other, relatively safer borrowing countries. This flight to safety implies an increase in house price growth in the other borrowing countries initially unaffected by house price shocks. Selected macroprudential measures reduce these international spillovers.

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