News-driven international credit cycles

How does news about future economic fundamentals affect within-country and cross-country credit allocation? effective is unconventional policy when financial crises are driven by unfulfilled favorable news? I study these questions employing a two-sector, two-country macroeconomic model with banking sector in which associated occasionally binding leverage constraints. In response to positive on the valuation of non-traded capital turns out be incorrect at later date, captures patterns flows current account dynamics Spain between 2000–2010, including changes sectoral allocation bank movements borrowing during boom bust. When there policies common authority news, liquidity injections perform better ameliorating downturn than direct assets purchases from sector.