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The dampening effect of bank foreign liabilities on monetary policy: Revisiting monetary cooperation in East Asia

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  • Chen, Xiaofen

Abstract

This paper addresses the cost of formal monetary cooperation from the perspective of monetary policy effectiveness. As banks tend to borrow from abroad in foreign currencies to fund domestic lending, monetary policy may have a reduced effect on the credit market and the economy. Results derived from bank level data in East Asia indicate that bank foreign liabilities significantly reduce the effectiveness of the credit channel of monetary policy, implying a relatively low cost of giving up monetary autonomy.

Suggested Citation

  • Chen, Xiaofen, 2012. "The dampening effect of bank foreign liabilities on monetary policy: Revisiting monetary cooperation in East Asia," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 412-427.
    • Handle: RePEc:eee:jimfin:v:31:y:2012:i:2:p:412-427
    DOI: 10.1016/j.jimonfin.2011.12.004
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    More about this item

    Keywords

    Bank foreign liabilities; Monetary policy; Monetary cooperation; Liability dollarization; East Asia;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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