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US monetary policy and global banking flows

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  • Lee, Seungyoon
  • Bowdler, Christopher

Abstract

This note investigates the impact of US monetary policy on US global bank leverage and cross-border US dollar denominated banking flows, using US monetary policy shocks identified based on narrative sources and the Federal Reserve’s Greenbook forecasts (Romer and Romer, 2004). Compared to Bruno and Shin (2015), who employ standard recursive monetary policy identification techniques, we find that leverage declines more quickly and to a much larger extent after a monetary tightening, suggesting that declines in the availability of debt finance play a significant role in the propagation of monetary policy via the banking system. The decline in international flows of dollar denominated bank funding is also larger using the externally identified monetary policy measure, as is the degree of US dollar appreciation. By expanding the baseline model into bilateral VARs for 36 countries, we find that the retrenchment of cross-border banking flows after US monetary contraction is much larger in response to the externally identified monetary policy shocks, which is consistent with the results of the aggregate model. By looking at country groups, it is observed that banking outflows after US monetary contraction are more pronounced in the case of emerging market economies than in the case of advanced economies.

Suggested Citation

  • Lee, Seungyoon & Bowdler, Christopher, 2020. "US monetary policy and global banking flows," Journal of International Money and Finance, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:jimfin:v:103:y:2020:i:c:s026156061930227x
    DOI: 10.1016/j.jimonfin.2019.102118
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    References listed on IDEAS

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    1. Mackowiak, Bartosz, 2007. "External shocks, U.S. monetary policy and macroeconomic fluctuations in emerging markets," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2512-2520, November.
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    6. Bluedorn, John C. & Bowdler, Christopher, 2011. "The open economy consequences of U.S. monetary policy," Journal of International Money and Finance, Elsevier, vol. 30(2), pages 309-336, March.
    7. Christina D. Romer & David H. Romer, 2004. "A New Measure of Monetary Shocks: Derivation and Implications," American Economic Review, American Economic Association, vol. 94(4), pages 1055-1084, September.
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    Cited by:

    1. Lee, Seungyoon & Bowdler, Christopher, 2022. "International spillovers from US monetary policy: Evidence from Asian bank-level data," Journal of International Money and Finance, Elsevier, vol. 127(C).

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    More about this item

    Keywords

    US monetary policy shock; Global banking flows; Global bank leverage;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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