International Bank Lending Channel of Monetary Policy

By Silvia Albrizio, Sangyup Choi, Davide Furceri, Chansik Yoon

November 1, 2019

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Silvia Albrizio, Sangyup Choi, Davide Furceri, and Chansik Yoon. International Bank Lending Channel of Monetary Policy, (USA: International Monetary Fund, 2019) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

How does domestic monetary policy in systemic countries spillover to the rest of the world? This paper examines the transmission channel of domestic monetary policy in the cross-border context. We use exogenous shocks to monetary policy in systemically important economies, including the U.S., and local projections to estimate the dynamic effect of monetary policy shocks on bilateral cross-border bank lending. We find robust evidence that an increase in funding costs following an exogenous monetary tightening leads to a statistically and economically significant decline in cross-border bank lending. The effect is weakened during periods of high uncertainty. In contrast, the effect is found to not vary according to the degree of borrower country riskiness, further weakening support for the international portfolio rebalancing channel.

Subject: Bank credit, Central bank policy rate, Cross-border banking, Financial services, International banking, Monetary policy, Monetary tightening, Money

Keywords: Bank credit, Central bank policy rate, Channel of monetary policy, Cross-border banking, Cross-border banking flows, FOMC monetary policy announcement, Global, Global financial cycles, International bank lending channel, International banking, Lending channel, Local projections, Monetary policy action, Monetary policy shock, Monetary policy spillovers, Monetary tightening, Shock series, Standard error, WP

Publication Details

Pages:

61
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/234
Stock No:

WPIEA2019234
ISBN:

9781513518770
ISSN:

1018-5941

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