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The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects

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  • Morais Bernardo
  • Peydró José-Luis
  • Roldán-Peña Jessica
  • Ruiz Claudia

Abstract

We identify the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico matched with firm and bank data, and by exploiting foreign monetary policy shocks in a country with a large presence of European and U.S. banks. The robust results show that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock mainly affects supply via their respective banks, in turn implying strong real effects, with lower elasticities from QE. The impact of low foreign monetary policy rates and expansive QE is stronger on local borrowers with higher ex-ante loan rates -reach-for-yield- and with higher ex-post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest spillovers of core-countries´ monetary policies on emerging markets, both in the foreign monetary softening and tightening part.

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  • Morais Bernardo & Peydró José-Luis & Roldán-Peña Jessica & Ruiz Claudia, 2017. "The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects," Working Papers 2017-15, Banco de México.
  • Handle: RePEc:bdm:wpaper:2017-15
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    Cited by:

    1. Charles Abuka & Ronnie K Alinda & Camelia Minoiu & José-Luis Peydró & Andrea Presbitero, 2015. "Monetary Policy in a Developing Country; Loan Applications and Real Effects," IMF Working Papers 15/270, International Monetary Fund.
    2. Temesvary, Judit & Ongena, Steven & Owen, Ann L., 2018. "A global lending channel unplugged? Does U.S. monetary policy affect cross-border and affiliate lending by global U.S. banks?," Journal of International Economics, Elsevier, vol. 112(C), pages 50-69.
    3. Jin Cao & Valeriya Dinger, 2018. "Financial Globalization and Bank Lending: The Limits of Domestic Monetary Policy?," CESifo Working Paper Series 6900, CESifo Group Munich.
    4. Baskaya, Yusuf Soner & di Giovanni, Julian & Kalemli-Özcan, Şebnem & Peydro, José-Luis & Ulu, Mehmet Fatih, 2017. "Capital flows and the international credit channel," Journal of International Economics, Elsevier, vol. 108(S1), pages 15-22.
    5. Gräb, Johannes & Żochowski, Dawid, 2017. "The international bank lending channel of unconventional monetary policy," Working Paper Series 2109, European Central Bank.
    6. Isha Agrawal & Rupa Duttagupta & Andrea Presbitero, 2017. "International Commodity Prices and Domestic Bank Lending in Developing Countries," IMF Working Papers 17/279, International Monetary Fund.
    7. repec:eee:ecmode:v:71:y:2018:i:c:p:234-246 is not listed on IDEAS
    8. Georgiadis, Georgios & Jančoková, Martina, 2017. "Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks," Working Paper Series 2082, European Central Bank.
    9. Olivier De Jonghey & Hans Dewachter & Steven Ongenax, 2016. "Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions," Working Paper Research 303, National Bank of Belgium.
    10. João Barata R B Barroso & Rodrigo Barbone Gonzalez & Bernardus F Nazar Van Doornik, 2017. "Credit supply responses to reserve requirement: loan-level evidence from macroprudential policy," BIS Working Papers 674, Bank for International Settlements.
    11. Fritz Breuss, 2016. "The Crisis Management of the ECB," WIFO Working Papers 507, WIFO.
    12. Luisa Carpinelli & Matteo Crosignani, 2017. "The Effect of Central Bank Liquidity Injections on Bank Credit Supply," Finance and Economics Discussion Series 2017-038, Board of Governors of the Federal Reserve System (U.S.).
    13. Isha Agrawal & Rupa Duttagupta & Andrea Presbitero, 2017. "International Commodity Prices and Domestic Bank Lending in Developing Countries," IMF Working Papers 17/279, International Monetary Fund.
    14. Isabel Argimon & Clemens Bonner & Ricardo Correa & Patty Duijm & Jon Frost & Jakob de Haan & Leo de Haan & Viktors Stebunovs, 2018. "Financial Institutions’ Business Models and the Global Transmission of Monetary Policy," International Finance Discussion Papers 1228, Board of Governors of the Federal Reserve System (U.S.).
    15. Teodora Paligorova & Horacio Sapriza & Andrei Zlate & Ricardo Correa, 2017. "Cross-border Flows and Monetary Policy," 2017 Meeting Papers 335, Society for Economic Dynamics.

    More about this item

    Keywords

    Monetary policy; financial globalization; quantitative easing (QE); credit supply; risk-taking; foreign banks;

    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
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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