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Global banking and the balance sheet channel of monetary transmission

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  • Uluc Aysun

    ()
    (University of Central Florida, Orlando, FL)

  • Sami Alpanda

    ()
    (Amherst College, Amherst, MA)

Abstract

The literature typically finds that the development of financial markets has decreased the ability of central banks to affect the real economy. This paper shows that this negative relationship does not hold between the balance sheet channel of monetary transmission and bank globalization -- one aspect of financial development. The reason is that global banks are more sensitive to their borrowers’ leverage. By affecting this leverage, monetary policy has a larger impact on global banks’ lending and aggregate economic activity. We use bank-level, Call Report data to find this disparity between more and less global banks. We then use these data in the estimation of a general equilibrium model and find that the balance sheet channel of monetary transmission operates mainly through more global banks.

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Bibliographic Info

Paper provided by University of Central Florida, Department of Economics in its series Working Papers with number 2011-04.

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Length: 39 Pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:cfl:wpaper:2011-04

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Keywords: balance sheet channel; bank globalization; financial accelerator;

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References

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Citations

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Cited by:
  1. Uluc Aysun & Sami Alpanda, 2012. "International Transmission of Financial Shocks in an Estimated DSGE model," Working Papers 2012-06, University of Central Florida, Department of Economics.
  2. Auer, Simone, 2014. "Monetary policy shocks and foreign investment income: evidence from a large Bayesian VAR," Globalization and Monetary Policy Institute Working Paper 170, Federal Reserve Bank of Dallas.

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