Francesco Molteni will present "International Banking Flows and Financial Crises".

This paper studies the dynamics of capital flows disaggregated by instrument and by sector during episodes of different financial crises. The author constructs a novel indicator of bank inflows and finds that they generally contract during twin crises, the simultaneous occurrence of banking and currency crises. This is not observed for other types of capital inflows and other types of crises. The author proposes a model with financial intermediaries facing financial frictions to rationalize this finding, providing a new explanation based on a feedback loop between bank inflows, bank leverage, and nominal exchange rates that can account for twin crises, and studies how different macro-prudential policies can reduce their probability. The theoretical predictions find a confirmation in a discrete choice model of early warning indicators for twin crises.

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