Abstract
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.
| Original language | English |
|---|---|
| Article number | 102124 |
| Journal | Journal of International Money and Finance |
| Volume | 102 |
| DOIs | |
| Publication status | Published - 2020 Apr |
Bibliographical note
Funding Information:We would like to thank anonymous referees and the edtiors of this special issue for their valuable comments. We are also thankful to our discussants Shu Lin, Ilhyock Shim, James Yetman, Dawid Żochowski at various conferences for their insightful feedback and Joshua Aizenman, Isabel Argímon, Clodomiro Ferreira, Ippei Fujiwara, Alessandro Galesi, Reuven Glick, Linda Goldberg, Chao He, Yi Huang, Iván Kataryniuk, Jinil Kim, Soyoung Kim, José Luis Montiel Olea, Alice Ouyang, Ramkishen Rajan, Kwangyong Park, Myungkyu Shim, Kwanho Shin, Livio Stracca, Dora Xia, Youngjin Yun, Yabin Wang, and the seminar participants at 4th IEFS-EAER Conference in Seoul, 5th HenU/INFER Workshop on Applied Macroeconomics in Kaifeng, 7th ABFER Conference in Singapore, 94th WEAI Conference Central Bank Research Association session in San Francisco, Bank of Korea Economic Research Institute, Bank of Spain, CEMLA-ECB-FRBNY-BCRP Conference on Financial Intermediation, Credit and Monetary Policy in Lima, Conference on Global Safe Assets, International Reserves, and Capital Flow in Hong Kong, KAIST College of Business, and Yonsei University for helpful comments. Suhaib Kebhaj, Alberto Lopez, and Junhyeok Shin provided excellent research assistance. This work was supported (in part) by the Yonsei University Future-leading Research Initiative of 2018 ( 2018-22-0185 ). This paper was written when Chansik Yoon was a graduate student at Yonsei University. The views expressed are those of the authors and do not represent those of the IMF or its policy, nor those of the Banco de España and the Eurosystem. Any remaining errors are the authors’ sole responsibility. The appendix is available online or in the working paper version of this paper ( Albrizio et al., 2019 ).
Funding Information:
We would like to thank anonymous referees and the edtiors of this special issue for their valuable comments. We are also thankful to our discussants Shu Lin, Ilhyock Shim, James Yetman, Dawid Żochowski at various conferences for their insightful feedback and Joshua Aizenman, Isabel Argímon, Clodomiro Ferreira, Ippei Fujiwara, Alessandro Galesi, Reuven Glick, Linda Goldberg, Chao He, Yi Huang, Iván Kataryniuk, Jinil Kim, Soyoung Kim, José Luis Montiel Olea, Alice Ouyang, Ramkishen Rajan, Kwangyong Park, Myungkyu Shim, Kwanho Shin, Livio Stracca, Dora Xia, Youngjin Yun, Yabin Wang, and the seminar participants at 4th IEFS-EAER Conference in Seoul, 5th HenU/INFER Workshop on Applied Macroeconomics in Kaifeng, 7th ABFER Conference in Singapore, 94th WEAI Conference Central Bank Research Association session in San Francisco, Bank of Korea Economic Research Institute, Bank of Spain, CEMLA-ECB-FRBNY-BCRP Conference on Financial Intermediation, Credit and Monetary Policy in Lima, Conference on Global Safe Assets, International Reserves, and Capital Flow in Hong Kong, KAIST College of Business, and Yonsei University for helpful comments. Suhaib Kebhaj, Alberto Lopez, and Junhyeok Shin provided excellent research assistance. This work was supported (in part) by the Yonsei University Future-leading Research Initiative of 2018 (2018-22-0185). This paper was written when Chansik Yoon was a graduate student at Yonsei University. The views expressed are those of the authors and do not represent those of the IMF or its policy, nor those of the Banco de España and the Eurosystem. Any remaining errors are the authors’ sole responsibility. The appendix is available online or in the working paper version of this paper (Albrizio et al. 2019).
Publisher Copyright:
© 2019 Elsevier Ltd
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics