Template-Type: ReDIF-Paper 1.0 Author-Name: Qingqing Cao Author-X-Name-First: Qingqing Author-X-Name-Last: Cao Author-Email: caoqq@msu.edu Author-Workplace-Name: Michigan State University Author-Name: Raoul Minetti Author-X-Name-First: Raoul Author-X-Name-Last: Minetti Author-Email: minetti@msu.edu Author-Workplace-Name: Michigan State University Author-Name: Maria Pia Olivero Author-X-Name-First: Maria Pia Author-X-Name-Last: Olivero Author-Email: mpo25@drexel.edu Author-Workplace-Name: Drexel University and Haverford College Title: No Pain, No Gain. Multinational Banks in the Business Cycle Abstract: We study the role of multinational banks in the propagation of business cycles in host countries. In our economy, multinational banks can transfer liquidity across borders through internal capital markets. However, their scarce knowledge of local firms’ collateral hinders their allocation of liquidity to firms. We find that, through the interaction between the “liquidity origination” advantage and the “liquidity allocation” disadvantage, multinational banks can act as a stabilizer in the immediate aftermath of domestic liquidity shocks but be a drag on the subsequent recovery. Structural and cyclical policies can ameliorate the trade-off induced by the presence of multinational banks Length: 33 pages Creation-Date: 2018-04 Publication-Status: File-URL: https://repec.lumsa.it/wp/wpC27.pdf File-Format: Application/pdf Number: wpC27 Classification-JEL: E44 Keywords: Multinational Banks; Macroeconomic Stability; Business Cycle Handle: RePEc:lsa:wpaper:wpC27