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The Role of US Monetary Policy in Banking Crises Across the World

Author

Listed:
  • C. Bora Durdu

    (Federal Reserve Board)

  • Alex Martin

    (MIT)

  • Ilknur Zer

    (Federal Reserve Board)

Abstract

We examine the role of US monetary policy in banking crises across the world by using a cross-country database spanning 69 countries over the 1870–2010 period. US monetary policy tightening increases the probability of a banking crisis for those countries with direct linkages to the USA, either in the form of trade links or significant share of USD-denominated liabilities. Conversely, if a country is integrated globally, rather than having a direct exposure, the effect is ambiguous. These findings suggest that the effect of US monetary policy in global banking crises is not uniform and is largely dependent on the nature of linkages with the USA.

Suggested Citation

  • C. Bora Durdu & Alex Martin & Ilknur Zer, 2020. "The Role of US Monetary Policy in Banking Crises Across the World," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(1), pages 66-107, March.
  • Handle: RePEc:pal:imfecr:v:68:y:2020:i:1:d:10.1057_s41308-020-00109-1
    DOI: 10.1057/s41308-020-00109-1
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    More about this item

    Keywords

    Banking crises; Financial stability; Monetary policy shocks; Sudden stops; Global financial cycles;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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