The international business cycle is very important for Latin America's economic performance as the recent global crisis vividly illustrated. This paper investigates how changes in trade linkages between China, Latin America, and the rest of the world have altered the transmission mechanism of international business cycles to Latin America. Evidence based on a Global Vector Autoregressive (GVAR) model for 5 large Latin American economies and all major advanced and emerging economies of the world shows that the long-term impact of a China GDP shock on the typical Latin American economy has increased by three times since mid-1990s. At the same time, the long-term impact of a US GDP shock has halved, while the transmission of shocks from Latin America and the rest of emerging Asia (excluding China and India) GDP has not undergone any significant change. Contrary to common wisdom, we find that these changes owe more to the changed impact of China on Latin America's traditional and largest trading partners than to increased direct bilateral trade linkages boosted by the decade-long commodity price boom. These findings help to explain why Latin America did so well during the global crisis, but point to the risks associated with a deceleration in China's economic growth in the future for both Latin America and the rest of the world economy. The evidence reported also suggests that the emergence of China as an important source of world growth might be the driver of the so called "decoupling" of emerging markets business cycle from that of advanced economies reported in the existing literature. RésuméLe cycle économique international est d'une grande importance pour l'économie latinoaméricaine, comme l'a illustré de manière éloquente la récente crise mondiale. Dans leur étude, les auteurs examinent comment l'évolution des relations commerciales entre la Chine, l'Amérique latine et le reste du monde a modifié le mécanisme de transmission des cycles économiques internationaux vers le continent latino-américain. Les résultats obtenus à partir d'un modèle vectoriel autorégressif mondial, constitué de cinq économies importantes d'Amérique latine et de l'ensemble des principales économies avancées et émergentes, montrent que l'incidence à long terme d'un choc du PIB de la Chine sur l'économie latino-américaine type a triplé depuis le milieu des années 1990. Parallèlement, le retentissement à long terme d'un choc du PIB des États-Unis diminuait de moitié, alors que la transmission d'un choc du PIB en Amérique latine et dans les pays émergents d'Asie (hors Chine et Inde) n'affichait pas de changement notable. Les auteurs découvrent que les évolutions observées doivent, contrairement à ce qui est iv communément admis, plus à la montée de l'influence de la Chine auprès des grands partenaires commerciaux traditionnels de l'Amérique latine qu'à l'intensification des échanges bilatéraux directs que l'essor des cours des matières premières a favorisée durant une décennie. Ces constatations aident à expliquer pourquoi l'Amériqu...

The international business cycle is very important for Latin America's economic performance as the recent global crisis vividly illustrated. This paper investigates how changes in trade linkages between China, Latin America, and the rest of the world have altered the transmission mechanism of international business cycles to Latin America. Evidence based on a Global Vector Autoregressive (GVAR) model for 5 large Latin American economies and all major advanced and emerging economies of the world shows that the long-term impact of a China GDP shock on the typical Latin American economy has increased by three times since mid-1990s. At the same time, the long-term impact of a US GDP shock has halved, while the transmission of shocks from Latin America and the rest of emerging Asia (excluding China and India) GDP has not undergone any significant change. Contrary to common wisdom, we find that these changes owe more to the changed impact of China on Latin America's traditional and largest trading partners than to increased direct bilateral trade linkages boosted by the decade-long commodity price boom. These findings help to explain why Latin America did so well during the global crisis, but point to the risks associated with a deceleration in China's economic growth in the future for both Latin America and the rest of the world economy. The evidence reported also suggests that the emergence of China as an important source of world growth might be the driver of the so called "decoupling" of emerging markets business cycle from that of advanced economies reported in the existing literature. RésuméLe cycle économique international est d'une grande importance pour l'économie latinoaméricaine, comme l'a illustré de manière éloquente la récente crise mondiale. Dans leur étude, les auteurs examinent comment l'évolution des relations commerciales entre la Chine, l'Amérique latine et le reste du monde a modifié le mécanisme de transmission des cycles économiques internationaux vers le continent latino-américain. Les résultats obtenus à partir d'un modèle vectoriel autorégressif mondial, constitué de cinq économies importantes d'Amérique latine et de l'ensemble des principales économies avancées et émergentes, montrent que l'incidence à long terme d'un choc du PIB de la Chine sur l'économie latino-américaine type a triplé depuis le milieu des années 1990. Parallèlement, le retentissement à long terme d'un choc du PIB des États-Unis diminuait de moitié, alors que la transmission d'un choc du PIB en Amérique latine et dans les pays émergents d'Asie (hors Chine et Inde) n'affichait pas de changement notable. Les auteurs découvrent que les évolutions observées doivent, contrairement à ce qui est iv communément admis, plus à la montée de l'influence de la Chine auprès des grands partenaires commerciaux traditionnels de l'Amérique latine qu'à l'intensification des échanges bilatéraux directs que l'essor des cours des matières premières a favorisée durant une décennie. Ces constatations aident à expliquer pourquoi l'Amériqu...

We analyze how bank profitability impacts financial stability from both theoretical and empirical perspectives. We first develop a theoretical model of the relationship between bank profitability and financial stability by exploring the role of non-interest income and retailoriented business models. We then conduct panel regression analysis to examine the empirical determinants of bank risks and profitability, and how the level and the source of bank profitability affect risks for 431 publicly traded banks (U.S., advanced Europe, and GSIBs) from 2004 to 2017. Results reveal that profitability is negatively associated with both a bank's contribution to systemic risk and its idiosyncratic risk, and an over-reliance on noninterest income, wholesale funding and leverage is associated with higher risks. Low competition is associated with low idiosyncratic risk but a high contribution to systemic risk. Lastly, the problem loans ratio and the cost-to-income ratio are found to be key factors that influence bank profitability. The paper's findings suggest that policy makers should strive to better understand the source of bank profitability, especially where there is an over-reliance on market-based non-interest income, leverage, and wholesale funding. JEL Classification Numbers: G10, G20 and C23.

The international business cycle is very important for Latin America's economic performance as the recent global crisis vividly illustrated. This paper investigates how changes in trade linkages between China, Latin America, and the rest of the world have altered the transmission mechanism of international business cycles to Latin America. Evidence based on a Global Vector Autoregressive (GVAR) model for 5 large Latin American economies and all major advanced and emerging economies of the world shows that the long-term impact of a China GDP shock on the typical Latin American economy has increased by three times since mid-1990s. At the same time, the long-term impact of a US GDP shock has halved, while the transmission of shocks from Latin America and the rest of emerging Asia (excluding China and India) GDP has not undergone any significant change. Contrary to common wisdom, we find that these changes owe more to the changed impact of China on Latin America's traditional and largest trading partners than to increased direct bilateral trade linkages boosted by the decade-long commodity price boom. These findings help to explain why Latin America did so well during the global crisis, but point to the risks associated with a deceleration in China's economic growth in the future for both Latin America and the rest of the world economy. The evidence reported also suggests that the emergence of China as an important source of world growth might be the driver of the so called "decoupling" of emerging markets business cycle from that of advanced economies reported in the existing literature. RésuméLe cycle économique international est d'une grande importance pour l'économie latinoaméricaine, comme l'a illustré de manière éloquente la récente crise mondiale. Dans leur étude, les auteurs examinent comment l'évolution des relations commerciales entre la Chine, l'Amérique latine et le reste du monde a modifié le mécanisme de transmission des cycles économiques internationaux vers le continent latino-américain. Les résultats obtenus à partir d'un modèle vectoriel autorégressif mondial, constitué de cinq économies importantes d'Amérique latine et de l'ensemble des principales économies avancées et émergentes, montrent que l'incidence à long terme d'un choc du PIB de la Chine sur l'économie latino-américaine type a triplé depuis le milieu des années 1990. Parallèlement, le retentissement à long terme d'un choc du PIB des États-Unis diminuait de moitié, alors que la transmission d'un choc du PIB en Amérique latine et dans les pays émergents d'Asie (hors Chine et Inde) n'affichait pas de changement notable. Les auteurs découvrent que les évolutions observées doivent, contrairement à ce qui est iv communément admis, plus à la montée de l'influence de la Chine auprès des grands partenaires commerciaux traditionnels de l'Amérique latine qu'à l'intensification des échanges bilatéraux directs que l'essor des cours des matières premières a favorisée durant une décennie. Ces constatations aident à expliquer pourquoi l'Amériqu...

Interconnectedness among global systemically important banks (GSIBs) and global systemically important insurers (GSIIs) has important financial stability implications. This paper examines connectedness among United States, European and Asian GSIBs and GSIIs, using publicly-available daily equity returns and intra-day volatility data from October 2007 to August 2016. Results reveal strong regional clusters of return and volatility connectedness amongst GSIBs and GSIIs. Compared to Asia, selected GSIBs and GSIIs headquartered in the United States and Europe appear to be main sources of market-based connectedness. Total system connectedness-i.e., among all GSIBs and GSIIs-tends to rise during financial stress, which is corroborated by a balance sheet oriented systemic risk measure. Lastly, the paper demonstrates significant influence of economic policy uncertainty and U.S. long-term interest rates on total connectedness among systemically important institutions, and the important role of bank profitability and asset quality in driving bank-specific return connectedness.